When a skilled job becomes vacant, the firm can hire externally or promote internally and backfill from the entry-level market. We extend the vacancy-chains framework of Elsby et al. (2025) to incorporate this endogenous port-of-entry choice. The model reveals two opposing forces: rank-varying hiring costs create congestion externalities that absorb most of the amplification in the original framework, while the promotion margin partially restores it by rerouting replacement demand away from congested skilled markets. Quantitatively, the model generates substantial amplification of labor market fluctuations, accounting for roughly a third of the empirical volatility of job-finding rates, even though over half of skilled placements occur internally
and are invisible to conventional vacancy measures. This measurement wedge is procyclical. The cyclical promotion share generates differential hiring volatility across job levels, providing a mechanism for slack entry-level markets during recessions. The endogenous composition of new hires also dampens measured new-hire wage procyclicality through a between-firm channel. Using resume and job-posting data, we document that approximately half of skilled openings are filled internally, with systematic heterogeneity across job types.
