Promotion vs Quitting: Which Earns a Higher Salary?

A promotion at work is usually a good thing. It’s an acknowledgement by your employer that you’re doing a good job, and even better, it comes with more money. Sometimes, though, the better option is to quit.

That might run contrary to common sense, but a new study from MIT Sloan finds that internal hiring may not be advantageous for some lower wage employees.

Faculty members Nathan Wilmers and William Kimball looked at job switching both internally at companies and between employers between 1995 and 2019. What they found was that workers in the 25% lowest paid occupations who took a promotion earned 7% less than workers in that same wage group who switched companies.

“People starting out in those low-paying occupations tend to not to be in the firms that are doing internal hiring,” Wilmers told MIT Magazine. “They tend to not be in settings where they have access to upward mobility within a firm at all, which is why they have to switch firms entirely to make progress.”

For people in the top 25% of salaries at companies, however, a promotion is often the way to go. The study found that those workers made 6% more when they made an internal move versus going to a new company (That doesn’t take into account non-tangibles such as vacation time and personal days, either).

The study may have also pointed at some of the reasoning behind the ongoing turnover problem in the service industry. People who are in low-paying organizations have a lower chance at promotion, because they’re competing against so many other people for a small number of jobs (For instance, there may be only one or two managers at a restaurant or service company, with lots of people hoping to take that step up). With little chance of advancement, a move to another company might seem the best option.

“Low-paid workers [are] isolated in industries with few high-paying jobs to transfer into,” the study reads. “Moving jobs in an employer dominated by low-skilled positions brings fewer opportunities than does moving within an employer with many high-paying jobs.”

One way to retain these workers, say the study’s authors, is to add value to those jobs, via teaching new skills or giving employees more freedom in deciding how to handle various situations. Thinking of them solely as “starter jobs” that people will quickly leave can make that a self-fulfilling policy.

Upskilling is a way for both employees to potentially earn more via promotions than by having to launch a new job search as well as lowering attrition for companies and creating a more valuable staff that can adapt to upcoming workplace changes.

That could be a tremendous advantage. Last year, a Fortune/Deloitte survey asked CEOs which external issues they expect to impact their business. The top answer wasn’t the pandemic, it was a labor and skills shortage. And 60% of HR leaders told Gartner that building critical skills and competencies was their top priority this year.

“The entire concept of work is evolving quickly,” a pilot study from the World Economic Forum found earlier this year. “And the upheaval brought on by the COVID-19 pandemic further crystalized an urgent and complex global employment challenge: how to prepare people for the future of work in ways that serve individuals, businesses and communities.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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