The effect of a job ladder is to create an internal labor market within the firm. The internal labor market is for those jobs in the firm for which competition to fill a vacancy is limited to workers already employed within the firm. The beginning of the internal labor market is the port of entry which connects the internal job ladder to the labor market outside the firm.
If someone at the top of the job ladder retires then workers at each step of the ladder move up one rung creating a vacancy at the bottom or port of entry. To fill this vacancy the firm goes to the external market where it competes with other firms for workers at the entry level.
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