nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2011‒12‒13
thirty papers chosen by
Tommaso Reggiani
Universita' di Bologna

  1. Are the Self-Employed Really Jacks-of-All-Trades? Testing the Assumptions and Implications of Lazear's Theory of Entrepreneurship with German Data By Lechmann, Daniel S. J.; Schnabel, Claus
  2. Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions By DeVaro, Jed
  3. Firm-Sponsored Classroom Training: Is It Worth It for Older Workers? By Dostie, Benoit; Léger, Pierre Thomas
  4. Managerial incentives under competitive pressure: Experimental investigation By Ahmed Ennasri; Marc Willinger
  5. Education, Innovation, and Long-Run Growth By Katsuhiko Hori; Katsunori Yamada
  6. Profit Sharing and Training By Kraft, Kornelius; Lang, Julia
  7. Education-occupation mismatch in Turkish labor market By Filiztekin, Alpay
  8. Family Background, Self-Confidence and Economic Outcomes By Filippin, Antonio; Paccagnella, Marco
  9. Social returns to education in a developing country By Filiztekin, Alpay
  10. Parental Ethnic Identity and Educational Attainment of Second-Generation Immigrants By Schüller, Simone
  11. The Role of Peers in Estimating Tenure-Performance Profiles: Evidence from Personnel Data By de Grip, Andries; Sauermann, Jan; Sieben, Inge
  12. Are the self-employed really jacks-of-all-trades? Testing the assumptions and implications of Lazear's theory of entrepreneurship with German data By Lechmann, Daniel S. J.; Schnabel, Claus
  13. Growth effects of 19th century mass migrations: "Fome Zero" for Brazil By Stolz, Yvonne; Baten, Jörg; Botelho, Tarcísio
  14. Satisfaction with creativity: a study of organisational characteristics and individual motivations By Silvia Sacchetti; Ermanno C. Tortia
  16. Work Hours Constraints and Health By Bell, David N.F.; Otterbach, Steffen; Sousa-Poza, Alfonso
  17. Prizes versus Wages with Envy and Pride By Pradeep Dubey; John Geanakoplos; Ori Haimanko
  18. Disability and Job Mismatches in the Australian Labour Market By Jones, Melanie K.; Mavromaras, Kostas G.; Sloane, Peter J.; Wei, Zhang
  19. The complementary effects of proximity dimensions on knowledge spillovers By Emanuela Marrocu; Raffaele Paci; Stefano Usai
  20. Management practices: Are not-for-profits different? By Josse Delfgaauw; Robert Dur; Carol Propper; Sarah Smith
  21. Asymmetric perception of gains vs non-losses and losses vs non-gains: The causal role of regulatory focus By Simona Sacchi; Luca Stanca
  22. Early Retirement and Financial Incentives: Differences Between High and Low Wage Earners By Rob Euwals
  23. Location Determinants of New Firms: Does Skill Level of Human Capital Really Matter? By Arauzo Carod, Josep Maria
  24. Incentives in the Public Sector: Evidence from a Government Agency By Simon Burgess; Carol Propper; Marisa Ratto; Emma Tominey
  25. Job Preferences as Revealed by Employee Initiated Job Changes By Grund, Christian
  26. It's the Opportunity Cost, Stupid! How Self-Employment Responds to Financial Incentives of Return, Risk and Skew By Berkhout, Peter; Hartog, Joop; van Praag, Mirjam
  27. Selecting the Best? Spillover and Shadows in Elimination Tournaments By Jennifer Brown; Dylan B. Minor
  28. Do Gender Differences in Risk Preferences Explain Gender Differences in Labor Supply, Earnings or Occupational Choice? By Cho, In Soo
  29. Education as a Precautionary Asset By Angela Cipollone
  30. Who works in the public sector? Evidence from the World Values Survey By Sarah Smith; Edd Cowley

  1. By: Lechmann, Daniel S. J. (University of Erlangen-Nuremberg); Schnabel, Claus (University of Erlangen-Nuremberg)
    Abstract: Using a large representative German data set and various concepts of self-employment, this paper tests the "jack-of-all-trades" view of entrepreneurship by Lazear (AER 2004). Consistent with its theoretical assumptions we find that self-employed individuals perform more tasks and that their work requires more skills than that of paid employees. In contrast to Lazear's assumptions, however, self-employed individuals do not just need more basic but also more expert skills than employees. Our results also provide only very limited support for the idea that human capital investment patterns differ between those who become self-employed and those ending up in paid employment.
    Keywords: entrepreneurship, self-employed, Germany
    JEL: J23 J24
    Date: 2011–11
  2. By: DeVaro, Jed
    Abstract: Applying a simultaneous-equations estimation approach that accounts for both worker and firm behavior, I show that six alternative promotion models can be empirically distinguished to a greater extent than previously thought. I show that classic tournaments, market-based tournaments, and performance standards can be sharply distinguished when promotions induce worker effort. I also show that market-based tournaments with effort choices can be sharply distinguished from those with human capital investments. A key insight is that an empirical test can be based on the “opposing responses” property whereby workers and firms adjust their choice variables in opposite directions when the stochastic component of worker performance changes. Finally, I propose a new approach – also requiring simultaneous equations – for empirically distinguishing between classic tournaments and market-based tournaments with human capital investments, showing that the two models differ in their predictions regarding the average wage between job levels.
    Keywords: tournaments; promotions; relative performance; internal promotion competitions; wage spreads; tests of tournament theory
    JEL: M5 M51 M50
    Date: 2011
  3. By: Dostie, Benoit (HEC Montreal); Léger, Pierre Thomas (HEC Montreal)
    Abstract: We use longitudinal linked employer-employee data and find that the probability of participating in firm-sponsored classroom training diminishes rapidly for workers aged 45 years and older. Although the standard human capital investment model predicts such a decline, we also consider the possibility that returns to training decline with age. Taking into account endogenous training decisions, we find that the training wage premium diminishes only slightly with age. However, estimates of the impact of training on productivity decrease dramatically with age, suggesting that incentives for firms to invest in classroom training are much lower for older workers.
    Keywords: wages, productivity, linked employer-employee data, aging, firm-sponsored classroom training
    JEL: C23 D24 J31
    Date: 2011–11
  4. By: Ahmed Ennasri; Marc Willinger
    Abstract: We investigate the effects of competition on managerial incentives and effort in a laboratory experiment. Each owner offers compensation to his manager in two different contexts: monopoly and Cournot duopoly. After accepting the compensation, the manager chooses an effort level to increase the probability of reduced costs of his firm. Theory predicts that the entry of a rival firm in a monopolistic industry affects negatively both the incentive compensation and the effort level. Our experimental findings confirm that the entry of a rival firm reduces the incentive compensation but not the manager’s effort level. However, despite the reduction of the incentive compensation, the manager continues to accept the contract offers and exert the same level of effort.
    Keywords: Managerial Incentives, Effort, Competition, Moral hazard, Experiments
    Date: 2011–06
  5. By: Katsuhiko Hori (Institute of Economic Research, Kyoto University); Katsunori Yamada (Institute of Social and Economic Research, Osaka University)
    Abstract: This study augments a second-generation Schumpeterian growth model to employ human capital explicitly. We clarify the general-equilibrium interactions of subsidy policies to R&D and human capital accumulation in a unified framework. Despite a standard intuition that subsidizing these growth-enhancing activities is always mutually growth promoting, we find asymmetric effects for subsidies on R&D and those on education. Our theoretical result of asymmetric policy effects provides an important empirical caveat that empirical researchers may find false negative relationships between education subsidies and the output growth rate, if they merely rely on the standard human capital model.
    Keywords: Schumpeterian growth model; human capital accumulation; subsidies
    JEL: O15 O32 O41
    Date: 2011–11
  6. By: Kraft, Kornelius (TU Dortmund); Lang, Julia (TU Dortmund)
    Abstract: We analyze the impact of profit sharing on the share of workers receiving training. An effect is plausible because: 1) profit sharing is a credible commitment by firms to reward firm-specific skills acquired by formal or informal training, 2) profit sharing may reduce turnover and increase the returns to training, 3) a common payment for the whole workforce leads to peer group pressure to participate in training courses and raises incentives to help co-workers. In order to eliminate possible selectivity effects, we combine a matching approach with difference-in-differences. We identify the proportion of employees participating in profits and differentiate profit sharing according to the percentage of the workers covered by such remuneration schemes. Using German establishment data we find that profit sharing only has a significant effect on training intensity if the majority of the workforce benefits from it.
    Keywords: profit sharing, training, matching
    JEL: C14 J33 M52 J24
    Date: 2011–11
  7. By: Filiztekin, Alpay
    Abstract: There is a consensus that one of the most important ingredients for high and sustainable growth is human capital accumulation. Yet, a different strand of literature argues that there are some frictions in the labor markets of most countries that result in possible education-occupation mismatches, and consequently inefficiencies. Despite a significant amount of research using data from advanced economies there are very few studies on developing economies. Considering that human capital is scarce in these countries, whether it is efficiently allocated is arguably relatively more important. This paper using data from two different years examines the incidence of overeducation in Turkey. The findings show that there is a significant amount of over- and undereducated workers, and they are paid significantly less than those with the same level of education but working in jobs that require education levels that match their own. The magnitude of the incidence and the impact of mismatches on wages are, however, not too different than in most developed economies.
    Keywords: human capital; overeducation; returns to schooling; Turkey
    JEL: A20
    Date: 2011
  8. By: Filippin, Antonio (University of Milan); Paccagnella, Marco (Bank of Italy)
    Abstract: In this paper we analyze the role played by self-confidence, modeled as beliefs about one's ability, in shaping task choices. We propose a model in which fully rational agents exploit all the available information to update their beliefs using Bayes' rule, eventually learning their true type. We show that when the learning process does not convergence quickly to the true ability level, even small differences in initial confidence can result in diverging patterns of human capital accumulation between otherwise identical individuals. As long as inital differences in the level of self-confidence are correlated with the socioeconomic background (as a large body of empirical evidence suggests), self-confidence turns out to be a channel through which education and earnings inequalities are transmitted across generations. Our theory suggests that cognitive tests should take place as early as possible, in order to avoid that systematic differences in self-confidence among equally talented people lead to the emergence of gaps in the accumulation of human capital.
    Keywords: self-confidence, family background
    JEL: D83 J24 J62
    Date: 2011–11
  9. By: Filiztekin, Alpay
    Abstract: This paper estimates social returns to education in Turkey. Most evidence on spillovers from human capital comes mostly from developed countries, and estimates vary from country to country. The paper finds that social returns to education are around 3-4%, whereas private returns per year of education amount to 5% in Turkey. Moreover, the findings indicate that workers with lower skills, or working in sectors with lower average wages benefit most from externalities. The results are robust to a series of checks, using a number of individual and regional controls, as well as instrumental variable estimation.
    Keywords: human capital externalities; returns to education; wages
    JEL: J31 A20 R23
    Date: 2011
  10. By: Schüller, Simone (IZA)
    Abstract: A lack of cultural integration is often blamed for hindering immigrant families' economic progression. This paper is a first attempt to explore whether immigrant parents' ethnic identity affects the next generation's human capital accumulation in the host country. Empirical results based on data from the German Socio-Economic Panel (GSOEP) indicate that maternal majority as well as paternal minority identity are positively related to the educational attainment of second-generation youth – even controlling for differences in ethnicity, family background and years-since-migration. Additional tests show that the effect of maternal majority identity can be explained by mothers' German language proficiency, while the beneficial effect of fathers' minority identity is not related to language skills and thus likely to stem from paternal minority identity per se.
    Keywords: ethnic identity, second-generation immigrants, education
    JEL: I21 J15 J16
    Date: 2011–11
  11. By: de Grip, Andries (ROA, Maastricht University); Sauermann, Jan (ROA, Maastricht University); Sieben, Inge (Tilburg University)
    Abstract: In this paper, we estimate tenure-performance profiles using unique panel data that contain detailed information on individual workers' performance. We find that a 10 per cent increase in tenure leads to an increase in performance of 5.5 per cent of a standard deviation. This translates to an average performance increase of about 75 per cent within the first year of the employment relationship. Furthermore, we show that there are peer effects in learning on-the-job: Workers placed in teams with more experienced and thus more productive peers perform significantly better than those placed in teams with less experienced peers. An increase in the average team tenure by one standard deviation leads to an increase of 11 to 14 per cent of a standard deviation in performance.
    Keywords: tenure-performance profiles, experience, learning on-the-job, peer effects, productivity, call centres
    JEL: J24 D24 L89
    Date: 2011–11
  12. By: Lechmann, Daniel S. J.; Schnabel, Claus
    Abstract: Using a large representative German data set and various concepts of self-employment, this paper tests the jack-of-all-trades view of entrepreneurship by Lazear (AER 2004). Consistent with its theoretical assumptions we find that self-employed individuals perform more tasks and that their work requires more skills than that of paid employees. In contrast to Lazear's assumptions, however, self-employed individuals do not just need more basic but also more expert skills than employees. Our results also provide only very limited support for the idea that human capital investment patterns differ between those who become self-employed and those ending up in paid employment. -- Unter Verwendung eines großen, repräsentativen Datensatzes für Deutschland und verschiedener Abgrenzungen der Selbständigkeit überprüft diese Arbeit die jack-of-all-trades-Sicht des Unternehmertums von Lazear (AER 2004). In Übereinstimmung mit ihren theoretischen Annahmen finden wir, dass Selbständige mehr verschiedene Tätigkeiten ausüben und Kenntnisse aus mehr verschiedenen Gebieten benötigen als nicht-selbständige Arbeitnehmer. Im Gegensatz zu Lazear's Annahmen benötigen Selbständige allerdings nicht nur mehr Grundkenntnisse sondern auch mehr Fachkenntnisse als Nicht-Selbständige. Unsere Ergebnisse liefern zudem nur wenig Unterstützung für die Behauptung, dass sich die Muster der Humankapitalaneignung zwischen Selbstständigen und abhängig beschäftigten Arbeitnehmern sichtbar unterscheiden.
    Keywords: entrepreneurship,self-employed,Germany
    JEL: J23 J24
    Date: 2011
  13. By: Stolz, Yvonne; Baten, Jörg; Botelho, Tarcísio
    Abstract: We estimate a long-run trend of Brazilian human capital that extends back to the very beginning of the 18th century. With new data on selective immigration during the era of mass migrations at the end of the 19th century, we show that human capital endowment of international migrants can induce effects on economic development that persist until today. According to our estimations, the effect of selective immigration on real GDP per capita in the year 2000 is significant and equals around 75 US $ overall. As a reference, this value equals the amount poor Brazilians get to supplement their subsistence in the Fome Zero (Zero Hunger) program. We argue that human capital formation is a highly path-dependent and persistent process. --
    Keywords: migration,economic growth,Brazil,human capital,path dependency
    JEL: F22 J40 I21 N30
    Date: 2011
  14. By: Silvia Sacchetti; Ermanno C. Tortia
    Abstract: In answering the question of what influences satisfaction for creativity in the workplace, this work takes into account the extent to which the organization supports human aspiration to creativity. The empirical model uses survey data encompassing over 4,000 workers in Italian social enterprises. Results show that satisfaction for creativity is supported, at organizational level, by teamwork-oriented action, including the quality of processes, relations and on-the job autonomy. At the individual level, satisfaction for creativity is enhanced by the strength of intrinsic and socially oriented motivations and by competence. The analysis of interaction terms shows that teamwork and workers' intrinsic motivations are complementary in enhancing the perception of creativity-enhancing work settings, while a high degree of required competences appears to substitute good relationships with superiors
    Keywords: creativity, job satisfaction, organizational processes, motivations, teamwork,autonomy, interpersonal relations
    JEL: J24 J28 J54
    Date: 2011
  15. By: Antoine BERETTI; Charles FIGUIERES; Gilles GROLLEAU
    Abstract: Economists recognize that monetary incentives can backfire through the crowding-out of moral and social motivations leading to an overall decrease of the desired behavior. We implement a field experiment where participants are asked to fill a questionnaire on pro-environmental behaviors under different incentive schemes, either with no monetary incentive (control) or with low or high monetary incentive directed either to the respondents or to an environmental cause. We investigate whether (i) there is a significant crowding-out effect, (ii) directing monetary incentive to the cause rather than to the respondents reduces the overall impact of a crowding-out effect, and (iii) offering the choice regarding the money recipient aects participation. Except for a high monetary incentive where the respondent chooses himself the end-recipient, we show that monetary rewards directed either at the individual or at the cause actually harms intrinsic motivations, but not to the same extent. We formalize our results building on an adaptation of an original model by Bolle and Otto (2010) and introduce agents heterogeneity in terms of intrinsic motivation. This heterogeneity has key implications for the understanding of the crowding-out eect. Several policy recommendations regarding the use of market-based instruments are drawn.
    Date: 2011–06
  16. By: Bell, David N.F. (University of Stirling); Otterbach, Steffen (University of Hohenheim); Sousa-Poza, Alfonso (University of Hohenheim)
    Abstract: The issue of whether employees who work more hours than they want to suffer adverse health consequences is important not only at the individual level but also for governmental formation of work time policy. Our study investigates this question by analyzing the impact of the discrepancy between actual and desired work hours on self-perceived health outcomes in Germany and the United Kingdom. Based on nationally representative longitudinal data, our results show that work-hour mismatches (i.e., differences between actual and desired hours) have negative effects on workers’ health. In particular, we show that “overemployment” – working more hours than desired – has negative effects on different measures of self-perceived health.
    Keywords: work time, hours constraints, health, Germany, United Kingdom
    JEL: I10 J21 J22
    Date: 2011–11
  17. By: Pradeep Dubey (Center for Game Theory, Dept. of Economics, SUNY at Stony Brook); John Geanakoplos (Cowles Foundation, Yale University); Ori Haimanko (Dept. of Economics, Ben-Gurion University of the Negev)
    Abstract: We show that if agents are risk neutral, prizes outperform wages if and only if there is sufficient pride and envy relative to the noisiness of performance. If agents are risk averse, prizes are a necessary supplement to wages (as bonuses).
    Keywords: Envy, Pride, Wages, Prizes, Bonus
    JEL: C72 D01 D23 L14
    Date: 2011–11
  18. By: Jones, Melanie K. (Swansea University); Mavromaras, Kostas G. (NILS, Flinders University); Sloane, Peter J. (Swansea University); Wei, Zhang (NILS, Flinders University)
    Abstract: We examine the relationship between disability, job mismatch, earnings and job satisfaction, using panel estimation on data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey (2001-2008). While we do not find any relationship between work-limiting disability and over-skilling, it appears that there is a positive relationship between work-limiting disability and over-education, which is consistent with disability onset leading to downward occupational movement, at least in relative terms. We find a negative correlation between work-limiting disability and both earnings and job satisfaction. However, there is only evidence of a causal relationship in terms of the latter, where the impact of disability is found to be multifaceted.
    Keywords: job mismatch, disability, earnings, job satisfaction
    JEL: I0 J2 J3 J7 J24 J31
    Date: 2011–11
  19. By: Emanuela Marrocu; Raffaele Paci; Stefano Usai
    Abstract: The purpose of this paper is to analyse the effect of various proximity dimensions on the innovative capacity of 276 regions in Europe within a knowledge production function model, where R&D and human capital are included as the main internal inputs. We combine the standard geographical proximity with the institutional, technological, social and organizational ones to assess whether these externalities are substitutes or complements in channelling knowledge spillovers. Results show that all proximities have a significant complementary role in generating an important flow of knowledge across regions, with the technological closeness playing the most relevant role.
    Keywords: knowledge production; spillovers, proximity; human capital; weight matrix
    JEL: O31 R12 C31 O52 O18
    Date: 2011
  20. By: Josse Delfgaauw; Robert Dur; Carol Propper; Sarah Smith
    Abstract: Recent studies have demonstrated the importance of good management for firm performance. Here, we focus on management in not-for-profits (NFPs). We present a model predicting that management quality will be lower in NFPs compared to for-profits (FPs), but that outputs may not be worse if managers are altruistic. Using a tried and tested survey of management practices, we find that NFPs score lower than FPs but also that, while the relationship between management scores and outputs holds for FPs, the same is not true for NFPs. One implication is that management practices that work for FPs may be less effective in driving performance in NFPs.
    Keywords: Not-for-profits, management, impure altruism
    JEL: H8 J24 J45 L33
    Date: 2011–07
  21. By: Simona Sacchi; Luca Stanca
    Abstract: Recent studies show that, while losses loom larger than equivalent non-gains, gains loom larger than equivalent non-losses. This finding, at odds with the loss aversion principle, has been interpreted within the framework of regulatory focus theory. In this study, we explore the causal effect of regulatory focus on the asymmetric perception of gains vs non-losses and losses vs non-gains. We examine the perceived effects of both hypothetical and actual changes in monetary wealth, while orthogonally manipulating framing, valence, and regulatory focus. We find a significant interaction between the three factors. The gain vs non-loss asymmetry in perceived satisfaction is stronger in promotion focus, while the loss vs non-gain asymmetry in perceived dissatisfaction is stronger in prevention focus. The results suggest that the effects of incentives framed in terms of (non)gains and (non)losses, depend on their congruence with the individual’s motivational state.
    Keywords: Loss-gain asymmetry, regulatory focus, prospect theory, subjective value
    JEL: C91 D81
    Date: 2011–11
  22. By: Rob Euwals
    Abstract: <p>This paper investigates the impact of financial incentives on early-retirement behaviour for high and low wage earners. </p><p>Using a stylized life-cycle model, we derive hypotheses on the behaviour of the two types. We use administrative data and employ two identification strategies to test the predictions. First, we exploit exogenous variation in the replacement rate over birth cohorts of workers who are eligible to a transitional early retirement scheme. Second, we employ a regression discontinuity design by comparing workers who are eligible and non-eligible to the transitional scheme. The empirical results show that low wage earners are, as predicted by the model, more sensitive to financial incentives. The results imply that low wage earners will experience a stronger incentive to continue working in an optimal early retirement scheme.</p>
    JEL: J16 J22 J61
    Date: 2011–11
  23. By: Arauzo Carod, Josep Maria
    Abstract: This paper is about the role played by stock of human capital on location decisions of new manufacturing plants. We analyse the effect of several skill levels (from basic school to PhD) on decisions about the location of plants in various industries and, therefore, of different technological levels. We also test whether spatial aggregation level biases the results and determine the most appropriate areas to be considered in analyses of these phenomena. Our main statistical source is the Register of Manufacturing Establishments of Catalonia (REIC), which has plant-level microdata on the locations of new manufacturing plants. Keywords: agglomeration economies, industrial location, human capital, count-data models, spatial econometrics.
    Keywords: Localització industrial, Recursos humans, Anàlisi espacial (Estadística), 332 - Economia regional i territorial. Economia del sòl i de la vivenda,
    Date: 2011
  24. By: Simon Burgess; Carol Propper; Marisa Ratto; Emma Tominey
    Abstract: This paper addresses a lack of evidence on the impact of performance pay in the public sector by evaluating a pilot scheme of incentives in a major government agency. The incentive scheme was based on teams and covered quantity and quality targets, measured with varying degrees of precision. We use data from the agency’s performance management system and personnel records plus matched labour market data. We focus on three main issues: whether performance pay matters for public service worker productivity, what the team basis of the scheme implies, and the impact of the differential measurement precision. We show that the use of performance pay had no impact at the mean, but that there was significant heterogeneity of response. This heterogeneity was patterned as one would expect from a free rider versus peer monitoring perspective. We found that the incentive had a substantial positive effect in small teams, and a negative response in large teams. We found little impact of the scheme on quality measures, which we interpret as due to the differential measurement technology. We show that the scheme in small teams had non-trivial effects on output, and our estimates suggest that the use of incentive pay is much more cost effective than a general pay rise.
    Keywords: Incentives, Public Sector, Teams, Performance, Personnel Economics
    JEL: J33 J45 D23
    Date: 2011–08
  25. By: Grund, Christian (University of Duisburg-Essen)
    Abstract: Many previous studies try to discover job preferences by directly asking individuals. Since it is not sure, whether answers to these surveys are relevant for actual behaviour, this empirical examination offers a new approach based on representative German data. Employees who quit their job and find a new one, compare the two jobs with respect to eight job characteristics: type of work, pay, chances of promotion, work load, commuting time, work hour regulations, fringe benefits and security against loss of job. It is argued that the observation of many improvements (and few declines) for a certain attribute indicates a particular relevance and high preference for this attribute. It turns out that pay and type of work are most important for employees in this sense. Differences across subgroups of employees with respect to individual characteristics such as sex and age are explored. Those between East- and West-Germany diminish over time.
    Keywords: job characteristics, job changes, job preferences, quits
    JEL: M5 J28 J63
    Date: 2011–11
  26. By: Berkhout, Peter (RIGO Research Institute); Hartog, Joop (University of Amsterdam); van Praag, Mirjam (University of Amsterdam)
    Abstract: There is no robust empirical support for the effect of financial incentives on the decision to work in self-employment rather than as a wage earner. In the literature, this is seen as a puzzle. We offer a focus on the opportunity cost, i.e. the wages given up as an employee. Information on income from self-employment is of inferior quality and this is not just a problem for the outside researcher, it is an imminent problem of the individual considering self-employment. We also argue that it is not only the location of an income distribution that matters and that dispersion and (a)symmetry should not be ignored. We predict that higher mean, lower variance and higher skew in the wage distribution in a particular employment segment reduce the inclination to prefer self-employment above employee status. Using a sample of 56,000 recent graduates from a Dutch college or university, grouped in approximately 120 labor market segments, we find significant support for these propositions. The results survive various robustness checks on specifications and assumptions.
    Keywords: entrepreneurship, self-employment, wage-employment, income distribution, income risk, income skew, income variance, occupational choice, labor market entry, labor market segments, opportunity cost
    JEL: J24 L26
    Date: 2011–11
  27. By: Jennifer Brown; Dylan B. Minor
    Abstract: We consider how an elimination tournament's ability to select the most skilled competitor as the winner is shaped by past, current, and future competition. We present a two-stage model that yields the following main results: (1) a shadow effect — the weaker the expected future competitor, the greater the probability that the stronger player wins in the current stage and (2) an effort spillover effect — previous effort reduces the probability that the stronger player wins in the current stage. We test our theory predictions using data from high-stakes tournaments and betting markets. Empirical results suggest that shadow and spillover effects influence match outcomes.
    JEL: J01 J3 J31
    Date: 2011–12
  28. By: Cho, In Soo
    Abstract: This paper examines the extent to which differences in risk preferences between men and women explain why women have a lower entrepreneurship rate, earn less, and work fewer hours than men.  Data from the NLSY79 confirms previous findings that women are more risk averse than men.  However, while less risk averse men tend to become self-employed and more risk averse men are likely to choose paid-employment, there is no significant effect of risk preferences on women’s entrepreneurship decisions.  Similarly, more risk aversion is associated with higher earnings for male entrepreneurs, but it has no effect on female entrepreneurial earnings. Rising rates of risk aversion lower earnings for women, consistent with theoretical effects of risk preferences on labor earnings, but the effects are of modest magnitude.  Risk preferences do not explain variation in hours of work for either men or women.  These findings suggest that widely reported differences in risk preferences across genders play only a trivial role in explaining differences in labor market outcomes between men and women.
    Keywords: risk aversion; earnings; labor supply; gender gap; self-employment; Blinder-Oaxaca decomposition
    JEL: J16 J22 J24 J31
    Date: 2011–12–02
  29. By: Angela Cipollone (Department of Ecoomics and Finance, LUISS University)
    Abstract: By using data from the latest wave of the Indonesia Life Family Survey, this paper investigates whether child time allocation depends on the joint impact of liquidity constraints, risk attitudes and time preferences. We employ a double selection model of school hours to control for endogeneity of borrowing constraints and sample selection in school enrolment. Our measures of time preferences and risk attitudes are elicited from individuals’ responses to hypothetical gambles, and households’ risk profile is proxied by the past occurrence of shocks. It will be shown that, under liquidity constraints, risk averse parents raise a precautionary demand for education as an ex-ante risk coping strategy in order to insure future consumption through higher returns from children’s work.
    JEL: D10 D91 J01 J22
    Date: 2011
  30. By: Sarah Smith; Edd Cowley
    Abstract: Earlier single-country studies found a higher level of intrinsic motivation among public sector workers, compared to the private sector. Using data from the World Values Survey, covering 51 countries, we find a tendency for public sector workers to be more intrinsically motivated, but this is not a universal relationship: we also show that the level of government corruption (appropriately instrumented) explains some of the variation across countries. Consistent with earlier studies that find that selection accounts for differential motivation across sectors, we show that intrinsically-motivated workers are less likely to work in the public sector when corruption is higher.
    Keywords: Intrinsic motivation, public sector, corruption
    JEL: D64 D73 J45
    Date: 2011–08

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