nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2011‒11‒14
fifteen papers chosen by
Tommaso Reggiani
Universita' di Bologna

  1. Differentiation and Performance: An Empirical Investigation on the Incentive Effects of Bonus Plans By Kampkötter, Patrick; Sliwka, Dirk
  2. The Role of Educational Quality and Quantity in the Process of Economic Development By Amparo Castelló-Climent; Ana Hidalgo-Cabrillana
  3. Performance effects of appointing other firms' executive directors By Charlie Weir; Oleksandr Talavera; Alexander Muravyev
  4. The Spatial Distribution of Human Capital: Can It Really Be Explained by Regional Differences in Market Access? By Enrique López-Bazo; Burhan Can Karahasan
  5. The Long Wind of Change. Educational Impacts on Entrepreneurial Intentions By Robert Gold; Oliver Falck; Stephan Heblich
  6. The happy artist? An empirical application of the work-preference model By Lasse Steiner; Lucian Schneider
  7. Measuring Human Capital in Educaction By Stanislaw Walukiewicz; Aneta Wiktorzak
  8. Incentives and innovation: evidence from CEO compensation contracts By Francis, Bill; Hasan, Iftekhar; Sharma, Zenu
  9. Managerial Compensations and Information Sharing under Moral Hazard: Is Transparency Good? By Salvatore Piccolo; Emanuele Tarantino
  10. Work and Wage Dynamics around Childbirth By Ejrnæs, Mette; Kunze, Astrid
  11. Job Design and Incentives By Felipe Balmaceda
  12. Firm Performance and Wages: Evidence from Across the Corporate Hierarchy By Brian Bell; John Van Reenen
  13. The Dark Side of Reciprocity By Natalia Montinari
  14. Business Ownership by Workers: Are Worker Cooperatives a Viable Option? By Artz, Georgeanne M.; Kim, Younjun
  15. Education as a precautionary asset By Cipollone, Angela

  1. By: Kampkötter, Patrick (University of Cologne); Sliwka, Dirk (University of Cologne)
    Abstract: It is often claimed that supervisors do not differentiate enough between high and low performing employees when evaluating performance. The purpose of this paper is to study the incentive effects of this behavior empirically. We first show in a simple model that the perceived degree of past differentiation affects future incentives. We then study the impact of differentiation empirically with a large panel data set spanning many firms in one industry. On average, stronger differentiation has a substantial positive effect on performance. This effect is larger on higher hierarchical levels. But differentiation may become harmful at the lowest levels.
    Keywords: bonus payments, differentiation, subjective performance evaluation, incentives
    JEL: M52 D23
    Date: 2011–10
  2. By: Amparo Castelló-Climent; Ana Hidalgo-Cabrillana
    Abstract: We develop a theory of human capital investment to study the channels through which students react to school quality when deciding on investments in secondary education and above, and to study how educational quality affects economic growth. In a dynamic general equilibrium closed economy, primary education is mandatory but there is an opportunity to continue on in education, which is a private choice. High-quality education increases the returns to schooling, and hence the incentives to accumulate human capital. This is caused by two main effects: higher quality makes higher education accessible to more people (extensive channel), and once individuals decide to participate in higher education, higher quality increases the volume of investment made per individual (intensive channel). Furthermore, educational quality plays a central role in explaining the composition of human capital and the long-run level of income. Cross-country data evidence shows that the proposed channels are quantitatively important and that the effect of the quality and quantity of education on growth depends on the stage of development.
    Keywords: Quality of education, human capital composition, economic growth
    JEL: I21 O11 O15 O4
    Date: 2011–11
  3. By: Charlie Weir (Aberdeen Business School); Oleksandr Talavera (Durham Business School); Alexander Muravyev (IZA and St. Petersburg University GSOM)
    Abstract: This paper studies the relationship between directors’ human capital and the company’s performance. In particular, we focus on the effect on performance of non-executive directors who are also executive directors in other firms. We find a positive relationship between the presence of these non-executive directors and the accounting performance of the appointing company. The effect is stronger if these directors are also executive directors at companies that are performing well. Additionally, the similarity of industry plays a role. The results support the view that appointing firms benefit from the human capital of the appointee.
    Keywords: human capital, executive directors, non-executive directors, company performance
    JEL: G34 G39
    Date: 2011–10–01
  4. By: Enrique López-Bazo; Burhan Can Karahasan
    Abstract: This paper checks for the robustness of the estimate of the impact of market access on the regional variability of human capital, derived from the NEG literature. The hypothesis is that the estimate of the coefficient of the measure of market access is actually capturing the effect of regional differences in the industrial mix, and the spatial dependence in the distribution of human capital. Results for the Spanish provinces indicate that the estimated impact of market access vanishes and becomes non-significant once these two elements are included in the empirical analysis.
    Date: 2011–09
  5. By: Robert Gold; Oliver Falck; Stephan Heblich
    Abstract: In this paper, we assess educational factors which might have an impact on entrepreneurship. We analyze influences on the entrepreneurial intentions of German university students and find that pre-university education significantly affects their desire to become an entrepreneur. Using the recent German history of separation and reunification as quasi-natural experiment, we focus on the early formation of entrepreneurial endowments during adolescence and investigate whether pre-university education affects university students’ entrepreneurial intentions. Particularly, we analyze the impact of socialization and schooling under the socialist regime of the former German Democratic Republic (GDR) which might hamper entrepreneurship. Our results show that socialist education has a negative effect on the entrepreneurial intentions of students in reunified Germany who were brought up in the GDR. When analyzing the subsample of East German students who were partly educated in the FRG after reunification in 1990, we find that some years of education in the liberal market system increase the entrepreneurial intentions of students born in the GDR. We focus on university students, since universities are seen as potential “breeding ground†for innovative entrepreneurship as described by Schumpeter (1912). Here we assume according to Falck et al. (2009) that entrepreneurial intentions are a good predictor for future entrepreneurship. We use data from a regularly repeated survey among university students in Germany. Our analysis rests on the three waves conducted after reunification at 23 universities, in (the former socialist) East as well as in West Germany. Generally, German students have significantly lower entrepreneurial intentions when they were educated in the GDR. We further restrict our sample to mobile students at West German universities and still find a negative effect of socialist education. This effect is also robust to the inclusion of a rich set of control variables concerning the students’ family background, job experience as well as further measures for their educational training. Overall, being educated in the socialist GDR decreases the likelihood of having entrepreneurial intentions between around 4 and 7 percentage points Thus our findings suggest that adolescents’ education might act as effective measure to stimulate entrepreneurship.
    Date: 2011–09
  6. By: Lasse Steiner; Lucian Schneider
    Abstract: The artistic labor market is marked by several adversities, such as low wages, above-average unemployment, and constrained underemployment. Nevertheless, it attracts many young people. The number of students exceeds the available jobs by far. A potential explanation for this puzzle is that artistic work might result in exceptionally high job satisfaction, a conjecture that has been mentioned at various times in the literature. We conduct the first direct empirical investigation of artists’ job satisfaction. The analysis is based on panel data from the German Socio-Economic Panel Survey (SOEP). Artists on average are found to be considerably more satisfied with their work than non-artists, a finding that corroborates the conjectures in the literature. Differences in income, working hours, and personality cannot account for the observed difference in job satisfaction. Partially, but not fully, the higher job satisfaction can be attributed to the higher self-employment rate among artists. Suggestive evidence is found that superior “procedural” characteristics of artistic work, such as increased variety and on-the-job learning, contribute to the difference in job satisfaction.
    Keywords: Job satisfaction, artists, work-preference, cultural economics
    JEL: Z10 J24 J28 J31
    Date: 2011–10
  7. By: Stanislaw Walukiewicz; Aneta Wiktorzak
    Abstract: We consider education as a number of multistage creative processes and analyse one of them - teaching knowledge (process P1) - in detail. In part 1 we describe the idea of Virtual Production Line (VPL), introduced by Walukiewicz in 2006 as an extension of Classical Production Line (CPL), an epitome of our perception of Henry Ford’s assembly line. Teachers connected by modern ICT network (in most cases it will just be the Internet) provide education to students on a VPL – kind of a virtual belt - instructing a given set of subjects (tasks) in a prescribed sequence, offering knowledge by a prescribed methodology, etc. In contrast to CPL, teachers on VPL will use their brain power mostly and divide the teaching process into a number of tasks in what we will call ‘self-organization of VPL’. In that perspective, VPL shall be defined as a conscious experience of a division of labour into tasks (self-organization) via the Internet, while CPL will just remain a partition of labour into a fixed number of jobs (tasks). In part 2 we introduce the value of human capital of a given student as a measure of P1 efficiency and compare it with the indicators used so far. In Poland the problem is that, different skills of students are not measured within one, integrated system. We propose a solution to this problem. Field study results are furnished. In conclusion, we formulate suggestions for further research. Key words: Human capital; Virtual Production Line (VPL); Classical Production Line (CPL); efficiency of education.
    Date: 2011–09
  8. By: Francis, Bill (Lally School of Management, Rensselaer Polytechnic Institute); Hasan, Iftekhar (Lally School of Management, Rensselaer Polytechnic Institute, and Bank of Finland); Sharma, Zenu (Long Island University)
    Abstract: We investigate the relationship between chief executive officer (CEO) compensation and innovation. In an empirical examination of compensation contracts of S&P 400, 500, and 600 firms we find that long-term incentives in the form of options are positively related to patents and citations to patents. In addition, convexity of options has a positive effect on innovation. We also find no relationship between pay for performance sensitivity (PPS) with patents and citations to patents while we did discover a positive relationship between these and golden parachutes. Finally, we show that subsequent to project failure managers’ compensation contracts are reset favourably. We provide support for the theory that compensation contracts that offer long-term commitment and protection from failure are more suitable for innovation.
    Keywords: CEO compensation; innovation and incentives
    JEL: D82 O31
    Date: 2011–10–03
  9. By: Salvatore Piccolo (Università Cattolica di Milano and CSEF); Emanuele Tarantino (Università di Bologna and TILEC)
    Abstract: We study the effects of information sharing on optimal contracting in a vertical hierarchies model with moral hazard and effort externalities. The paper has three main objectives. First, we determine and compare the equilibrium contracts with and without communication. We identify how each principal relates her agent’s wage to the opponent’s performance when they share information about agents’ performances. It turns out that the type of effort externalities across organizations is the main determinant of the responsiveness of each agent’s reward to the opponent’s performance. Second, in order to throw novel light on the emergence of information sharing agreements, we characterize the equilibria of a non- cooperative game where principals first decide whether to share information and then offer contracts to their exclusive agents. We explore the implications of introducing certification costs and show that three types of equilibria may emerge depending on the nature and (relative) strength of effort externalities: principals bilaterally share information if agents’ effort choices exhibit strong complementarity; only the principal with stronger monitoring power discloses information in equilibrium for intermediate levels of effort’s complementarity; principals do not share information if efforts are substitutes and for low values of effort’s complementarity. Moreover, differently from the common agency framework studied in Maier and Ottaviani (2009), in our model a prisoner’s dilemma may occur when efforts are substitutes and certification costs are negligible: if a higher effort by one agent reduces the opponent’s marginal productivity of effort the equilibrium involves no communication although principals would jointly be better off by sharing information. Finally, the model also offers novel testable predictions on the impact of competition on the basic trade-off between risk and incentives, the effects of organizations’ asymmetries on information disclosure policies as well as on the link between corporate control and the power of incentives.
    Keywords: Competing Hierarchies, Information Sharing, Moral Hazard
    Date: 2011–11–01
  10. By: Ejrnæs, Mette (University of Copenhagen); Kunze, Astrid (Norwegian School of Economics (NHH))
    Abstract: This study investigates how the first childbirth affects the wage processes of highly attached women. We estimate a flexible fixed effects wage regression model extended with post-birth fixed effects by the control function approach. Register data on West Germany are used and we exploit the expansionary family policy during the late 1980s and 1990s for identification. On the return to work after the birth, mothers' wages drop by 3 to 5.7 per cent per year of leave. We find negative selection back to full-time work after birth. We discuss policy implications regarding statistical discrimination and results on family gap.
    Keywords: wages, parental leave, human capital, return to work, non-random selection
    JEL: C23 J18 J22 J24 J31
    Date: 2011–10
  11. By: Felipe Balmaceda
    Abstract: This paper studies the problem of how to allocate n =2 independent tasks among an ndogenously determined number of jobs in a setting with risk neutral workers subject to limited liability and ex-post asymmetric information. The main message is that firms narrow down the scope of their jobs to deal with workers’ incentives to game the performance system (workers’ incentives to work harder in tasks that are well rewarded ex-post and to underperform in tasks that are poorly rewarded). Firms’ incentives to narrow job scopes are diminished when workers are intrinsically motivated by moral standards and, in contrast to Holmström and Milgrom (1991), when the degree to which tasks are substitutes increases. JEL-Classification: J41, J24, D21.
    Date: 2011
  12. By: Brian Bell; John Van Reenen
    Abstract: Does it matter whether you work for a successful company? And if so, does it matter who you are? To answer these questions we construct a unique panel dataset covering the pay of all CEOs, senior managers and a fully representative sample of workers for a large group of publicly-listed companies covering just under 90% of the market capitalization of the UK stock market. We show that senior management appear to have pay that is strongly associated with various measures of firm performance (such as shareholder return), while workers' pay is only weakly associated with such measures. A 10% increase in firm value is associated with an increase of 3% in CEO pay but only 0.2% in average workers' pay. Falls in firm performance are also followed by CEO pay cuts (but not as aggressively as upside rewards) and significantly more CEO firings. This is essentially a result of the responsiveness of flexible pay to performance and only senior executives have a large enough share of pay in bonuses to generate a sizeable overall effect on pay. Accounting for firm performance over the last decade can potentially explain between one-quarter and one-half of the rise in the gap between CEO pay and the pay of workers.
    Date: 2011–11
  13. By: Natalia Montinari (Max Planck Institute of Economics)
    Abstract: Whether friendship or competitive relationships deserve to be encouraged in the workplace is not obvious a priori. In this paper we derive the conditions under which a profit-aximizing employer finds it convenient to induce a rat race among workers exhibiting horizontal reciprocity in order to obtain underpaid or unpaid extra eort. We characterize the optimal compensation scheme under both symmetric and asymmetric information about workers'actions, and we also derive conditions for our result to hold in the presence of vertical reciprocity.
    Keywords: Extra Effort, Horizontal Reciprocity, Negative Reciprocity
    JEL: D83 J33
    Date: 2011–11–04
  14. By: Artz, Georgeanne M.; Kim, Younjun
    Abstract: One possible strategy for both succession and new business development is employee ownership.  New business formation as an employee-owned firm or cooperative may have some advantages over formation as a sole proprietorship or partnership: pooling financial resources, spreading risk and combining the various knowledge and skills of the members involved. In the case of business succession, selling to employees provides a tax benefit to the owners and increases the probability that the business will continue to exist in its current location, benefitting both the employees themselves and the local community. While worker cooperatives (or employee-owned cooperatives) are currently rare in the United States, successful examples exist, suggesting potential for future development of this type of organization. This paper reviews the literature on worker cooperatives and presents data on the extent and nature of worker cooperatives in the United States. It concludes with a discussion of the implications for employee-owned cooperative development in Iowa and provides suggestions for future research and outreach programming on this topic.
    JEL: J54
    Date: 2011–11–09
  15. By: Cipollone, Angela
    Abstract: By using data from the latest wave of the Indonesia Life Family Survey, the present work investigates whether and to which extent child time allocation depends on the joint impact of liquidity constraints and risk attitudes. We employ a double selection model of school hours, by adding time preferences, risk attitudes and proxies of risks and shocks among the relevant regressors, and controlling for sample selection and endogeneity of liquidity constraints and school enrolment. To this aim, we exploit measures of time preferences and risk attitudes elicited from individuals’ responses to hypothetical gambles and consider the past occurrence of shocks to proxy the risk profiles of the households under the assumption that households use past income volatility to predict future volatility. It will be shown that, under liquidity constraints, risk averse parents raise a precautionary demand for education as an ex-ante risk coping strategy, so to insure future consumption through higher returns from their children’s work.
    Keywords: schooling; risk aversion; liquidity constraints; risks; shocks
    JEL: J13 J22 D91
    Date: 2011–11–08

This nep-hrm issue is ©2011 by Tommaso Reggiani. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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