Personnel Economics

Question 1

What are personnel economics?

Answer 1

Application of economics and maths to traditional topics of human resource management

Question 2

Incentives: Employee effort

Answer 2

+: Set the compensation scheme to maximize profit subject to incentive compatibility and participation constraints

• :Utility
• decreasing and concave in effort
• increasing and concave in income
• Risk averse

Tradeoff between insurance and incentives

Question 3

Relative Performance Evaluation

Answer 3

• Use the performance of a peer group of competitors to
  filter out shocks that are common to the whole peer
  group.

-Tournament theory
-> Prizes are fixed in advance and depend on relative
rather than absolute performance
-> Larger spreads in wages at different levels motivate
those at lower levels to effort more
-> there is an optimal spread

Question 4

Matching Firms and Workers

Answer 4

• The issue is matching the right firms to the right workers
• Study the selection process from two approaches: game theoretic models of asymmetric information and models of efficient matching with symmetric learning about worker productivity.

Question 5

Asymmetric Information Models: How employees match to firms when one party is better informed

Answer 5

Common solutions

• Costly signals to infer the ability of applicants.
• Self selection.
• Incentive schemes.

Do not always bring efficient results

Question 6

Firing and Displacement

Answer 6

• Firms can not adjust wages to an employee’s marginal product
• Firms can change their selection at any time by layoffs: but legal barriers

Question 7

How determinate the level of compensation?

Answer 7

In a perfect scenario, enough to keep employees from leaving the firm = marginal product of the employee’s labor
- In an imperfect(real) scenario, there is a learning process. Farber and Gibbons (1996)
- Expected productivity depends on the innate ability and observable characteristics (education)
- They found a correlation between the last and the current
wage. Also that employer’s learning plays a key role in the
development of wages

Question 8

Organization of Work

Answer 8

How firms decide who does what?
Who works with whom?
Who works for whom?

Question 9

Conclusion: Personnel economics

Answer 9

• Personnel economics is an essential tool to learn about the underlying
  economics of human resource policies
• Trade-off between risk and incentives 1
• Studies of single firms are useful for understanding the effects of
  various human resource policies such as incentives, team-based
  production, and the role of jobs

Question 10

Does Job Testing Harm Minority Workers? Evidence From Retai Establishments

Answer 10

• Consistent with expectations, minority applicants performed significantly worse on the employment test
• Results speak only to firms’ private gains from improved worker selection
• No change in the racial composition of hires. Moreover, productivity gains were equally large among minority and majority hires.

Question 11

The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines

Answer 11

• Innovative HRM practices raise worker productivity and tend to be
  complements
• Systems of innovative HRM practices have large effects on production workers’ performance, while changes in individual employment practices have little or no effect.

Question 12

Orchestrating Impartiality: The Impact of “Blind” Auditions on Female Musicians

Answer 12

• Screen increases by 50 % the probability that a woman will be advanced from certain preliminary rounds
• Blind auditions can explain 30 % of the increase in the proportion female
  among new hires
  -In conclusion, the adoption of the screen and blind auditions served to help female musicians in their quest for orchestral positions.