Who Benefits from Internal Hiring?

Career ladders within organizations are often seen as one way to create opportunities for low-wage workers to move into better-paying jobs. But, in practice, how common is it for low-wage workers in the U.S. to benefit economically from moving to a new job within the same organization?

That’s a question explored in a new paper by MIT Sloan Professor Nathan Wilmers and William Kimball that was recently published online in the journal Social Forces. Wilmers is the Sarofim Family Career Development Professor and an Assistant Professor of Work and Organization Studies at the MIT Sloan School of Management. He is in the core faculty of the MIT Institute for Work and Employment Research (IWER) and is currently on leave as a visiting assistant professor at London Business School. Kimball, who earned his master’s degree at the MIT Institute for Work and Employment Research (IWER), is the assistant director of research at the Pennsylvania State Education Association.

Wilmers and Kimball’s new article, “How Internal Hiring Affects Occupational Stratification,” uses data from the Current Population Survey from 1995 to 2019 to explore the effects, on both low-wage and higher-wage workers, of increasing internal hiring. They find that, when there is a trend in a local labor market toward increased internal hiring, it yields less upward mobility for low-wage workers than a trend toward greater hiring from outside the organization. Indeed, the authors find, low-wage workers tend to do better by switching employers than by switching to a new job within the same organization.

One reason for that, Wilmers and Kimball conclude, is that in the United States today, low-wage workers are often segregated in organizations that have few higher-wage jobs into which they could move—a topic Wilmers has explored in prior research. This phenomenon is in part due to economic trends like outsourcing and shifts from manufacturing to service-sector employment. For example, a janitor decades ago might have worked for a large manufacturing facility that offered many types of jobs but today is more likely to work for a cleaning services company that other organizations hire to clean their offices. Such jobs offer fewer opportunities for moving up the ranks. “The results in this paper,” Wilmers and Kimball write, “suggest that skill segregation across employers can cut off lower skilled workers from opportunities for advancement.”

In contrast, Wilmers and Kimball find, the highest-paid quartile of employees, who work mostly in managerial and professional jobs, benefit the most from moving to a new position within an organization.

“Mobility inside employers thus does more to preserve occupational stratification than does mobility in the open labor market,” Wilmers and Kimball conclude. “Instead of providing a ladder of opportunity, organizational boundaries can block upward mobility among those at the bottom of the occupational distribution.”