The determination of the promotion process in organizations and of earnings differentials

The paper attempts to investigate the earnings distribution using Japanese male individual data. The model was estimated by applying a recursive multinomial logit framework. Much emphasis has been placed on investigating both the influence of hierarchy on the determination of earnings and the promotion process in hierarchical organizations. It was found that hierarchical position was very significant in determining the level of earnings. At the same time, hierarchical position (in other words, promotion) is largely determined by education, experience and unrecognized factors. It is proposed that education is used as a screening device in the promotion process.