Technical Report Firms' Incentive Provisions: Tournament Structure and Worker Flow

Kambayashi, Ryo  ,  Ueno, Yuko

2016-05 , Institute of Economic Research, Hitotsubashi University
This study aims to empirically examine how establishments employ various tools, including promotion, threat of dismissal, progressive base wages, and bonuses, to motivate workers. Starting with the standard tournament model, we incorporate the link between the tournament structure and the worker separation that affects the degree of internal competition for managerial positions. By using an establishment-level panel data set, we find that the average policy of human resource management in Japan, particularly since the global financial crisis, is consistent with tournament theory. Further, there is evidence that establishments use a positive selection scheme for determining the set of candidates. The progressive base wage schedule and the smaller portion of bonus payments for employees who remain are also consistent with the selection scheme.

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