Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71889
Authors: 
Kräkel, Matthias
Lammers, Frauke
Szech, Nora
Year of Publication: 
2011
Series/Report no.: 
Bonn Econ Discussion Papers 02/2011
Abstract: 
According to the previous literature on hiring, firms face a trade-off when deciding on external recruiting: From an incentive perspective, external recruiting is harmful since admission of external candidates reduces internal workers' career incentives. However, if external workers have high abilities hiring from outside is beneficial to improve job assignment. In our model, external workers do not have superior abilities. We show that external hiring can be profitable from a pure incentive perspective. By opening its career system, a firm decreases the incentives of its low-ability workers. The incentives of high-ability workers can increase from a homogenization of the pool of applicants. Whenever this effect dominates, a firm prefers to admit external applicants. If vacancies arise simultaneously, firms face a coordination problem when setting wages. If firms serve the same product market, weaker firms use external recruiting and their wage policy to offset their competitive disadvantage.
Subjects: 
Contest
externalities
recruiting
wage policy
JEL: 
C72
J2
J3
Document Type: 
Working Paper

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