Promotion Standards and Practices across the Business Cycle: Evidence from Korea

Abstract

Korean employers notoriously practice seniority-based personnel management, rather than one prioritizing workers’ skills or performance, and this has changed only slowly amid the evolving business landscape and advancing labor standards. This study contributes to understanding this phenomenon by assessing Korean firms’ promotion criteria and practices over the past decade across distinct phases of industry business cycles, and between the economy’s primary and secondary sectors. Primary-sector firms are shown to be less likely than secondary-sector firms to base their promotion decisions on the analysis of workers’ achievements and colleague ratings, but rather on their performance of core job duties. Primary-sector firms have more advancement steps within their management ranks, and longer wait time until promotion at all ranks. Secondary-sector firms are flatter hierarchically, featuring shorter time to promotion at all ranks and fewer advancement steps, but also a lower fraction of promotions based on special merit. Firms’ promotion practices change over the business cycle. During expansionary years, the hierarchical dispersion of workers within organizations widens, particularly among primary-sector firms, with more workers remaining as regular staff but more managers promoted to senior management. As firms recruit more regular staff, years to promotion to managerial positions, and the count of advancement steps increase. Business expansion induces firms to streamline promotions to management based on colleague ratings subject to lesser review of workers’ own achievements. Over the past decade, promotions by special merit have receded while those by colleague ratings have gone up. Firms are thus apparently not transitioning toward merit- and achievement-based promotions, and continue relying on subjective colleague ratings and job-content analysis in their stagnant hierarchical structures. This has implications for workers and for policymakers tasked with ushering in more inclusive, objective and meritocratic personnel management practices.