nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2012‒06‒25
thirteen papers chosen by
Tommaso Reggiani
University of Cologne

  1. Does human capital endowment of FDI recipient countries really matter? Evidence from cross-country firm level data By Sumon Bhaumik; Ralitza Dimova
  2. The CEO Labour Market in China's Public Listed Companies By Alex Bryson; John Forth; Minghai Zhou
  3. Self-Employment after Socialism: Intergenerational Links, Entrepreneurial Values, and Human Capital By Michael Fritsch; Alina Rusakova
  4. Anti-Social Behavior in Profit and Nonprofit Organizations By Auriol, Emmanuelle; Brilon, Stefanie
  5. Causal Returns to Schooling and Individual Heterogeneity By Pfeiffer, Friedhelm; Pohlmeier, Winfried
  6. The Behavioralist Goes to School: Leveraging Behavioral Economics to Improve Educational Performance By Steven D. Levitt; John A. List; Susanne Neckermann; Sally Sadoff
  7. Stock Market Tournaments By Ozdenoren, Emre; Yuan, Kathy
  8. Asymmetric information and overeducation By Mendolicchio, Concetta; Paolini, Dimitri; Pietra, Tito
  9. Management of Knowledge Workers By Hvide, Hans K.; Kristiansen, Eirik Gaard
  10. Exploration for human capital: Theory and evidence from the MBA labor market By Kuhnen, Camelia M.; Oyer, Paul
  11. The effect of ambiguity aversion on reward scheme choice By Kellner, Christian; Riener, Gerhard
  12. Knowledge Production Process, Diversity Type and Group Interaction as Moderators of the Diversity-Performance-Link: An Analysis of University Research Groups By Kerstin Pull; Birgit Pferdmenges; Uschi Backes-Gellner
  13. The distribution of talent across contests By Ghazala Azmat; Marc Möller

  1. By: Sumon Bhaumik; Ralitza Dimova
    Abstract: The stylized literature on foreign direct investment suggests that developing countries should invest in the human capital of their labour force in order to attract foreign direct investment. However, if educational quality in developing country is uncertain such that formal education is a noisy signal of human capital, it might be rational for multinational enterprises to focus more on job-specific training than on formal education of the labour force. Using cross-country data from the textiles and garments industry, we demonstrate that training indeed has greater impact on firm efficiency in developing countries than formal education of the work force.
    Keywords: Human capital; Training; Firm-level efficiency; Multinational enterprises
    JEL: F23 I25
    Date: 2012–02–01
  2. By: Alex Bryson; John Forth; Minghai Zhou
    Abstract: Using panel data for all of China's public listed firms over the period 2001-2010 we examine how firms have recruited and rewarded their executives over a decade of huge growth and turbulence. CEO pay is sensitive to firm performance, although the elasticities are lower than for the United States and Europe, especially with respect to returns on assets (ROA). CEO pay rises with firm size and growth, with elasticities resembling those for the United States. We find no dramatic response to the stock market crash of 2007/08. The elasticity of pay to stock returns falls to zero after the crash, while elasticities with respect to sales and ROA remain significant. Executive cash compensation rose steeply throughout the period - in contrast to the United States. There are steep gradients in executive compensation within firms, consistent with tournament prizes, and around two-thirds of CEO appointments are internal promotions. Within-firm executive compensation rose at a faster rate than executive compensation across firms, helping to explain why CEO turnover rates declined a little over the decade. Turnover rates did not spike with the stock market crash. Privatisation and reforms to corporate governance contributed to growth in executive compensation. A picture emerges of an executive labour market in which firms are linking pay to performance and relying on incentive structures within firms to foster executive talent.
    Keywords: executive compensation, CEOs, corporate governance, tournaments, firm-specific human capital, China
    JEL: G34 J31 J33 M12 M52 O16 P31
    Date: 2012–06
  3. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Alina Rusakova (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: Drawing on representative household data from the German Socio-Economic Panel, we examine the role of an early precursor of entrepreneurial development - parental role models - for the individual decision to become self-employed in the post-unified Germany. The findings suggest that the socialist regime significantly damaged this mechanism of an intergenerational transmission of entrepreneurial attitudes among East Germans with a tertiary degree that have experienced a particularly strong ideological indoctrination. However, we find a significant and positive relationship between the presence of a parental role model and the decision to become self-employed for less-educated people. For West Germans the positive relationship holds irrespective of the level of education.
    Keywords: Entrepreneurship, parental role models, human capital
    JEL: L26 Z1 D03
    Date: 2012–06–05
  4. By: Auriol, Emmanuelle; Brilon, Stefanie
    Abstract: Two types of intrinsically motivated workers are considered: "good" workers care about the mission of an organization, whereas "bad" workers derive pleasure from destructive behavior. While missionoriented organizations take advantage of the intrinsic motivation of good workers, they are more vulnerable than profit-oriented organizations to anti-social behavior: bad workers only join them to behave badly. To prevent this, monitoring has to go up in the mission-oriented sector, while the incentives for good behavior stay the same. In the profit-oriented sector, by contrast, both monitoring and bonus payments for good behavior increase to control the damage caused by bad workers. As a result, in equilibrium bad workers are generally working in the for-profit sector where they behave like "normal" people, while good workers self select into the mission-oriented sector.
    Keywords: candidate selection; motivated agents; non-profit; sabotage
    JEL: D21 D23 L31
    Date: 2012–03
  5. By: Pfeiffer, Friedhelm (ZEW Mannheim); Pohlmeier, Winfried (University of Konstanz)
    Abstract: In this paper, human capital investments are evaluated by assuming heterogeneous returns to schooling. We use the potential outcome approach to measure the causal effect of human capital investments on earnings as a continuous treatment effect. Empirical evidence is based on a sample of West German full-time employed males (BIBB/IAB survey on educational and vocational attainment and career 1998/99). Our estimate of the average partial effect (APE) of an additional year of schooling amounts to 8.7%, which is higher than OLS estimates and quite similar to conventional instrumental variable estimates.
    Keywords: returns to schooling, human capital, heterogeneity
    JEL: J21 J24 J31
    Date: 2012–05
  6. By: Steven D. Levitt; John A. List; Susanne Neckermann; Sally Sadoff
    Abstract: A long line of research on behavioral economics has established the importance of factors that are typically absent from the standard economic framework: reference dependent preferences, hyperbolic preferences, and the value placed on non-financial rewards. To date, these insights have had little impact on the way the educational system operates. Through a series of field experiments involving thousands of primary and secondary school students, we demonstrate the power of behavioral economics to influence educational performance. Several insights emerge. First, we find that incentives framed as losses have more robust effects than comparable incentives framed as gains. Second, we find that non-financial incentives are considerably more cost-effective than financial incentives for younger students, but were not effective with older students. Finally, and perhaps most importantly, consistent with hyperbolic discounting, all motivating power of the incentives vanishes when rewards are handed out with a delay. Since the rewards to educational investment virtually always come with a delay, our results suggest that the current set of incentives may lead to underinvestment. For policymakers, our findings imply that in the absence of immediate incentives, many students put forth low effort on standardized tests, which may create biases in measures of student ability, teacher value added, school quality, and achievement gaps.
    JEL: C9 C93 H75 I20
    Date: 2012–06
  7. By: Ozdenoren, Emre; Yuan, Kathy
    Abstract: We propose a new theory of suboptimal risk-taking based on contractual externalities. We examine an industry with a continuum of firms. Each firm's manager exerts costly hidden effort The productivity of effort is subject to systematic shocks. Firms' stock prices reflect their performance relative to the industry average. In this setting, stock-based incentives cause complementarities in managerial effort choices. Externalities arise because shareholders do not internalize the impact of their incentive provision on the average effort. During booms, they over-incentivise managers, triggering a rat-race in effort exertion, resulting in excessive risk relative to the second-best. The opposite occurs during busts.
    Keywords: Contractual Externalities; Excessive Risk-Taking; Insufficient Risk-Taking; Stock-Based Incentives
    JEL: D86 G01 G30
    Date: 2012–06
  8. By: Mendolicchio, Concetta (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Paolini, Dimitri; Pietra, Tito
    Abstract: "We consider an economy where production may use labor of two different skill levels. Workers are heterogeneous and, by investing in education, self-select into one of the two skills. Ex-ante, when firms choose their investments in physical capital, they do not know the level of human capital prevailing in the labor market they will be active in. We prove existence and constrained inefficiency of competitive equilibria, which are always characterized by overeducation. An increase in total expected surplus can be obtained by shrinking, at the margin, the set of workers investing in high skill. This can be implemented by imposing taxes on the cost of investing in high skill or by imposing a progressive labor earning tax." (Author's abstract, IAB-Doku) ((en))
    Keywords: ökonomische Theorie, Humankapital, Bildungsinvestitionen, Gleichgewichtstheorie
    JEL: J24 H2
    Date: 2012–06–14
  9. By: Hvide, Hans K. (University of Aberdeen); Kristiansen, Eirik Gaard (Norwegian School of Economics (NHH))
    Abstract: We study how firm-specific complementary assets and intellectual property rights affect the management of knowledge workers. The main results show when a firm will wish to sue workers that leave with innovative ideas, and the effects of complementary assets on wages and on worker initiative. We argue that firms protected weakly by complementary assets must sue leaving workers in order to obtain positive profits. Moreover, firms with more complementary assets pay higher wages and have lower turnover, but the higher pay has a detrimental effect on worker initiative. Finally, our analysis suggests that strengthening firms' property rights protection reduces turnover costs but weakens worker initiative.
    Keywords: entrepreneurship, innovation, intellectual property rights, litigation, personnel economics, R&D, start-ups, worker mobility
    JEL: J30 J60
    Date: 2012–05
  10. By: Kuhnen, Camelia M.; Oyer, Paul
    Abstract: Drawing on insights from corporate finance and personnel economics, we show that firms consider potential employees using a real options approach, much as they do when making other types of capital investment decisions. Theoretically we find that firms’ hiring decisions are influenced by the uncertainty in workers’ productivity, competition in the labor market, adjustment costs, and redeployability concerns. Firms value probationary employment arrangements that provide the option to learn about the productivity of potential hires before permanent investment occurs. Higher uncertainty and adjustment costs hinder permanent investment and increase the value of the option to learn. Greater competition for workers speeds up firm investment and increases the value of probationary employment. Higher worker redeployability leads to more investment, if firms face sufficiently low competition. We test and confirm these predictions empirically using a novel dataset with detailed recruiting information from the labor market for MBA graduates.
    Keywords: investment; hiring; human capital; real options; exploration; MBA labor market
    JEL: G31 J44 M51
    Date: 2012–06–08
  11. By: Kellner, Christian; Riener, Gerhard
    Abstract: We test the implications of ambiguity aversion in a principal-agent problem with multiple agents. Models of ambiguity aversion suggest that, under ambiguity, comparative compensation schemes may become more attractive than independent wage contracts. We test this by presenting agents with a choice between comparative reward schemes and independent contracts, which are designed such that under uncertainty about output distributions (that is, under ambiguity), ambiguity averse agents (and only those) should typically prefer comparative reward schemes, independent of their degree of risk aversion. We indeed find that the share of agents who choose the comparative scheme is higher under ambiguity than in the case of known output distributions. --
    Keywords: ambiguity aversion,comparative compensation schemes,Ellsberg urn,contract design
    JEL: D01 D03 D81 M55
    Date: 2012
  12. By: Kerstin Pull (Department of Human Resource Management and Organization, University of Tuebingen); Birgit Pferdmenges (University of Tuebingen); Uschi Backes-Gellner (Department of Business Administration, University of Zurich)
    Abstract: In our paper, we explore the diversity-performance link in knowledge production and argue it to be the result of two countervailing effects (resource vs. process perspective). Theoretically, we show that the relative strength of the two effects crucially depends on moderating factors that relate to specificities of the knowledge production process, the type of diversity and group interaction. We empirically test our hypotheses based on an original data set of 45 university research groups from different disciplinary fields which are by nature expected to produce new knowledge and are faced with complex tasks. Employing traditional OLS regressions as well as non-parametric LOWESS analyses, our hypotheses are largely born out by the data. In particular, we find a U-shaped relation between cultural diversity and performance in research groups from the humanities & social sciences and a negative link between functional diversity and per-formance in research groups from the natural sciences. As the disciplinary fields proxy different underlying knowledge production processes, the implications of our study can be generalized to other settings and help derive general conclusions for the management of diversity and future competitiveness strategies in knowledge intensive economies.
    Keywords: diversity, performance, knowledge production process, group interaction
    JEL: M54 J44 I23
    Date: 2012–06
  13. By: Ghazala Azmat; Marc Möller
    Abstract: Do the contests with the largest prizes attract the most able contestants? Do contestants avoid competition? In this paper we show that the distribution of abilities plays a crucial role in determining contest choice. Positive sorting exist only when the proportion of high ability contestants is sufficiently small. As this proportion increases, contestants shy away from competition and sorting decreases. Eventually, contests with smaller prizes attract stronger participants, i.e. there exists negative sorting. We test our theoretical predictions using a large panel data set containing contest choice over three decades. We use exogenous variation in the participation of highly able competitors to provide empirical evidence for the relationship between prizes and sorting.
    Keywords: contests, prize structure, ability, sorting
    JEL: D82 M52 D02
    Date: 2012–01

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