Because workers in internal labor markets are promoted on the basis of seniority:
A)such markets are allocatively inefficient because seniority takes precedence over ability
B)dynamic efficiency is enhanced by removing a disincentive for older workers to pass along skills to younger workers
C)static efficiency is enhanced by allocating the most able workers to each job
D)some other scheme must be introduced,such as tournament pay,to improve efficiency in such markets

Question

Quizplus · Accepted Answer

Internal labor markets promote dynamic efficiency by incentivizing older workers to pass along skills to younger workers, as they know that seniority-based promotions will be available to them regardless of whether they move up the ladder or not. While seniority may take precedence over ability in such markets, this is not necessarily allocatively inefficient as long as the most able workers are still allocated to each job, which may still be the case. Tournament pay or some other scheme may be introduced to improve efficiency, but this is not necessary for internal labor markets to promote dynamic efficiency.

Because Workers in Internal Labor Markets Are Promoted on the Basis