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External Recruitment as an Incentive Device

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  • Kong-Pin Chen

    (Academia Sinica and National Taiwan University)

Abstract
External recruitment is often believed to be harmful in that it trades off the need for outside talents with the incentives of inside workers. This article shows that, even from an incentive viewpoint, external recruitment has its powerful function. Specifically, if promotion is based on relative performance, then negative activities (sabotages) are a valuable instrument for competition. This results in inefficiency of the firm. External recruitment, by reducing the marginal return of negative effort relative to that of productive effort, restores the incentives in productive activity. Even without sabotage concern, external recruitment can avoid shirking equilibrium or prevent workers' collusion.

Suggested Citation

  • Kong-Pin Chen, 2005. "External Recruitment as an Incentive Device," Journal of Labor Economics, University of Chicago Press, vol. 23(2), pages 259-278, April.
    • Handle: RePEc:ucp:jlabec:v:23:y:2005:i:2:p:259-278
    DOI: 10.1086/428024
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    References listed on IDEAS

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    Cited by:

    1. Mario Bossler & Philipp Grunau, 2020. "Asymmetric information in external versus internal promotions," Empirical Economics, Springer, vol. 59(6), pages 2977-2998, December.
    2. Lewis Evans & Graeme Guthrie & Neil Quigley, 2012. "Contemporary Microeconomic Foundations for the Structure and Management of the Public Sector," Treasury Working Paper Series 12/01, New Zealand Treasury.
    3. Gürtler, Oliver & Münster, Johannes, 2010. "Sabotage in dynamic tournaments," Journal of Mathematical Economics, Elsevier, vol. 46(2), pages 179-190, March.
    4. repec:elg:eechap:15325_9 is not listed on IDEAS
    5. Johannes Münster, 2007. "Selection Tournaments, Sabotage, and Participation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(4), pages 943-970, December.
    6. Benjamin, Daniel K. & Thornberg, Christopher, 2007. "Organization and incentives in the age of sail," Explorations in Economic History, Elsevier, vol. 44(2), pages 317-341, April.
    7. Kräkel, Matthias & Szech, Nora & von Bieberstein, Frauke, 2014. "Externalities in recruiting," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 123-135.
    8. Timothy N. Bondtn, 2017. "Internal Labor Markets in Equilibrium," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(1), pages 28-67.
    9. Pedro Martins & Francisco Lima, 2006. "External recruitments and firm performance," Applied Economics Letters, Taylor & Francis Journals, vol. 13(14), pages 911-915.
    10. Christian Deutscher & Bernd Frick & Oliver Gürtler & Joachim Prinz, 2013. "Sabotage in Tournaments with Heterogeneous Contestants: Empirical Evidence from the Soccer Pitch," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(4), pages 1138-1157, October.
    11. Subhasish Chowdhury & Oliver Gürtler, 2015. "Sabotage in contests: a survey," Public Choice, Springer, vol. 164(1), pages 135-155, July.
    12. Kirkegaard Rene, 2008. "Comparative Statics and Welfare in Heterogeneous All-Pay Auctions: Bribes, Caps, and Performance Thresholds," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-32, September.
    13. Christian Pfeifer, 2011. "Handicaps in Job Assignment: Insiders, Outsiders and Gender," Journal of Labor Research, Springer, vol. 32(1), pages 1-20, March.
    14. Emma Lappi, 2024. "New hires, adjustment costs, and knowledge transfer—evidence from the mobility of entrepreneurs and skills on firm productivity," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 33(3), pages 712-737.
    15. Münster, Johannes, 2006. "Selection tournaments, sabotage, and participation [Auswahlturniere, Sabotage und Teilnahme]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2006-08, WZB Berlin Social Science Center.
    16. René Kirkegaard, 2007. "Comparative Statics and Welfare in Heterogeneous Contests: Bribes, Caps, and Performance Thresholds," Working Papers 0702, Brock University, Department of Economics.
    17. Münster, Johannes, 2006. "Selection Tournaments, Sabotage, and Participation," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 118, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    18. Tareq N. Hashem, 2018. "The Relationship Between Internal Marketing And Service Culture In Jordanian Commercial Banks," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 12(1), pages 366-375.
    19. Kräkel, Matthias & Schöttner, Anja, 2012. "Internal labor markets and worker rents," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 491-509.
    20. Haoming Liu & Jingfeng Lu & Yohanes E. Riyanto & Zhe Wang, 2024. "Contests with multiplicative sabotage effect," Theory and Decision, Springer, vol. 97(3), pages 499-526, November.
    21. J. Atsu Amegashie, 2013. "Sabotage in Contests: An Overview," CESifo Working Paper Series 4422, CESifo.
    22. Junichiro Ishida, 2012. "Dynamically Sabotage-Proof Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 30(3), pages 627-655.

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    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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