Wages and Learning in Internal Labor Markets : Evidence from a Taiwanese Company

This paper analyzes the personnel records of a Taiwanese auto dealer employing three distinct internal labor markets (ILMs), adding new evidence that builds upon recent empirical and theoretical works on ILMs. We find that the career mobility is different amongst different workers. The positive effects of levels, on both salary and bonus equations, are smaller under a fixed effects model than under an OLS (combined) model. However, part of the wage variations is contributed by individual heterogenity rather than the hierarchy itself. Evidence shows that education plays a much more important role in the determination of levels for staff workers (amongst whom the effective determination of output is difficult), than for salespersons and technicians (where output is much more easily measured). We hence argue that education serves as a mechanism to sort workers by ability. We also show that the public learning model proposed by Farber and Gibbons (1996) is not supported in general by our data. In addition, we find strong support of a serial correlation for salary, but not for a bonus. The overall picture is that ILM structures exist in different cultures, and their practice is different amongst workers who have different characteristics