nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2012‒07‒29
sixteen papers chosen by
Tommaso Reggiani
University of Cologne

  1. Discretion, Productivity and Work Satisfaction By Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M.
  2. Cheating in the Workplace: An Experimental Study of the Impact of Bonuses and Productivity By Gill, David; Prowse, Victoria L.; Vlassopoulos, Michael
  3. What explains the rise in CEO pay in Germany? A Panel Data Analysis for 1977-2009 By Fabbri, Francesca; Marin, Dalia
  4. Social Incentives Matter: Evidence from an Online Real Effort Experiment By Tonin, Mirco; Vlassopoulos, Michael
  5. Incentivizing calculated risk-taking :evidence from an experiment with commercial bank loan officers By Cole, Shawn; Kanz, Martin; Klapper, Leora
  6. Income convergence prospects in Europe: Assessing the role of human capital dynamics By Jesus Crespo Cuaresma; Miroslava Havettova; Martin Labaj
  7. Differences in Employment Outcomes for College Town Stayers and Leavers By Winters, John V.
  8. On-the-Job Learning and Earnings: Comparative Evidence from Morocco and Senegal By Nordman, Christophe Jalil; Wolff, François-Charles
  9. Expert Leaders in a Fast-Moving Environment By Goodall, Amanda H.; Pogrebna, Ganna
  10. Diversity of human capital and regional growth By Florian Noseleit; Rene Söllner
  11. Ethnic Diversity and Team Performance: A Field Experiment By Hoogendoorn, Sander M.; van Praag, Mirjam
  12. The Anatomy of French Production Hierarchies By Lorenzo Caliendo; Ferdinando Monte; Esteban Rossi-Hansberg
  13. Delegation and Rewards By Vetter, Stefan
  14. Repeated moral hazard and contracts with memory: A laboratory experiment By Nieken, Petra; Schmitz, Patrick W.
  15. Regional measures of human capital in the European Union By Christian Dreger; Georg Erber; Daniela Glocker
  16. Well-being and psychological consequences of temporary contracts: the case of younger Italian employees By Vincenzo Carrieri; Cinzia Di Novi; Rowena Jacobs; Silvana Robone

  1. By: Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M.
    Abstract: In Bartling, Fehr and Schmidt (2012) we show theoretically and experimentally that it is optimal to grant discretion to workers if (i) discretion increases productivity, (ii) workers can be screened by past performance, (iii) some workers reciprocate high wages with high effort and (iv) employers pay high wages leaving rents to their workers. In this paper we show experimentally that the productivity increase due to discretion is not only sufficient but also necessary for the optimality of granting discretion to workers. Furthermore, we report representative survey evidence on the impact of discretion on workers’ welfare, confirming that workers earn rents.
    Keywords: high-performance work systems; wages; discretion; gift exchange; job satisfaction
    JEL: M5 J3
    Date: 2012–06
  2. By: Gill, David (Oxford University); Prowse, Victoria L. (Cornell University); Vlassopoulos, Michael (University of Southampton)
    Abstract: We use an online real-effort experiment to investigate how bonus-based pay and worker productivity interact with workplace cheating. Firms often use bonus-based compensation plans, such as group bonuses and firm-wide profit sharing, that induce considerable uncertainty in how much workers are paid. Exposing workers to a compensation scheme based on random bonuses makes them cheat more but has no effect on their productivity. We also find that more productive workers behave more dishonestly. We explain how these results suggest that workers' cheating behavior responds to the perceived fairness of their employer's compensation scheme.
    Keywords: bonus, compensation, cheating, dishonesty, lying, employee crime, productivity, slider task, real effort, experiment
    JEL: C91 J33
    Date: 2012–07
  3. By: Fabbri, Francesca; Marin, Dalia
    Abstract: The compensation of executive board members in Germany has become a highly controversial topic since Vodafone's hostile takeover of Mannesmann in 2000 and it is again in the spotlight since the outbreak of the financial crisis of 2009. Based on unique panel data evidence of the 500 largest firms in Germany in the period 1977-2009 we test two prominent hypothesis in the literature on executive pay: the manager power hypothesis and the efficient pay hypothesis. We find support for the manager power hypothesis for Germany as executives tend to be rewarded when the sector is doing well rather than the firm they work for. We reject, however, the efficient pay hypothesis as CEO pay and the demand for managers increases in Germany in difficult times when the typical firm size shrinks. We find further that domestic and global competition for managers has contributed to the rise in executive pay in Germany. Lastly, we show that CEOs in the banking sector are provided with incentives for performance and that the great recession of 2009 acted as a disciplining devise on CEO pay in Germany.
    JEL: F23 J3 M12 M52
    Date: 2012–03
  4. By: Tonin, Mirco (University of Southampton); Vlassopoulos, Michael (University of Southampton)
    Abstract: Contributing to a social cause can be an important driver for workers in the public and non-profit sector as well as in firms that engage in Corporate Social Responsibility activities. This paper compares the effectiveness of social incentives to financial incentives using an online real effort experiment. We find that social incentives lead to a 20% rise in productivity, regardless of their form (lump sum or related to performance) or strength. When subjects can choose the mix of incentives half sacrifice some of their private compensation to increase social compensation, with women more likely than men. Furthermore, social incentives do not attract less productive subjects, nor subjects that respond more to exogenously imposed social incentives. Our calculations suggest that a dollar spent on social incentives is equivalent to increasing private compensation by at least half a dollar.
    Keywords: private incentives, social incentives, sorting, prosocial behavior, real effort experiment, corporate social responsibility, gender
    JEL: D64 J24 J32 L3 M14 M52
    Date: 2012–07
  5. By: Cole, Shawn; Kanz, Martin; Klapper, Leora
    Abstract: This paper uses a series of experiments with commercial bank loan officers to test the effect of performance incentives on risk-assessment and lending decisions. The paper first shows that, while high-powered incentives lead to greater screening effort and more profitable lending, their power is muted by both deferred compensation and the limited liability typically enjoyed by loan officers. Second, the paper presents direct evidence that incentive contracts distort judgment and beliefs, even among trained professionals with many years of experience. Loans evaluated under more permissive incentive schemes are rated significantly less risky than the same loans evaluated under pay-for-performance.
    Keywords: Debt Markets,Access to Finance,Bankruptcy and Resolution of Financial Distress,Banks&Banking Reform,Microfinance
    Date: 2012–07–01
  6. By: Jesus Crespo Cuaresma (Department of Economics, Vienna University of Economics and Business); Miroslava Havettova (Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava); Martin Labaj (Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava and Institute of Economic Research, Slovak Academy of Sciences)
    Abstract: We employ income projection models based on human capital dynamics in order to assess quantitatively the role that educational improvements are expected to play as a driver of future income convergence in Europe. We concentrate on income convergence dynamics between emerging economies in Central and Eastern Europe and Western European countries during the next 50 years. Our results indicate that improvements in human capital contribute significantly to the income convergence potential of European emerging economies. Using realistic scenarios, we quantify the effect that future human capital investments paths are expected to have in terms of speeding up the income convergence process in the region. The income projection exercise shows that the returns to investing in education in terms of income convergence in Europe could be sizeable, although it may take relatively long for the poorer economies of the region to rip the growth benefits.
    Keywords: Economic growth, income convergence, human capital, income projections, Europe, emerging economies
    JEL: O47 O52 I25 P27
    Date: 2012–07
  7. By: Winters, John V. (University of Cincinnati)
    Abstract: Areas surrounding colleges and universities are often able to build their local stock of human capital by retaining recent graduates in the area after they finish their education. This paper classifies 41 U.S. metropolitan areas as "college towns" and investigates differences in employment outcomes between college graduates who stay in the college town where they obtained their degree and college graduates who leave after completing their degree. We find that college town stayers experience less favorable employment outcomes along multiple dimensions. On average, stayers earn lower annual and hourly wages and work in less educated occupations.
    Keywords: migration, human capital, education, college towns, wages
    JEL: I20 J24 R23
    Date: 2012–07
  8. By: Nordman, Christophe Jalil (IRD, DIAL, Paris); Wolff, François-Charles (University of Nantes)
    Abstract: In this paper, we consider a model of on-the-job learning where workers learn informally by watching and imitating colleagues. We estimate the rate of knowledge diffusion inside the firm using two matched worker-firm data sets from Morocco and Senegal. We rely on non-linear least squares to estimate the structural parameters of the informal learning model and account for firm heterogeneity using firm factors derived from a principal component analysis. We find that the rate of knowledge diffusion is around 7 percent in Morocco and Senegal, but part of the learning-by-watching returns stems from firm heterogeneity. Informal training significantly affects the shape of returns to tenure in these two countries. Finally, we estimate an extended model with both learning-by-watching and learning-by-doing and find significant benefits from imitating colleagues in Morocco.
    Keywords: earnings functions, informal training, learning-by-watching, learning-by-doing, returns to tenure, Morocco, Senegal
    JEL: J24 J31 O12
    Date: 2012–07
  9. By: Goodall, Amanda H. (IZA); Pogrebna, Ganna (University of Sheffield)
    Abstract: This paper is an attempt to understand the effects of leaders on organizational performance. We argue for an ‘expert leader’ model of leadership. We differentiate between four kinds of leaders according to their level of inherent knowledge and industry experience. After controlling for confounding variables, teams led by leaders with extensive knowledge of the core business perform better than others. Our study collects and analyses 60 years of data from one of the world’s most competitive high-technology sectors (Formula 1 competition) in which each organization’s performance can be measured objectively. We show that the most successful team leaders in F1 motor racing are more likely to have started their careers as drivers and mechanics compared with leaders who were principally managers or engineers with degrees. There is a notable association between driving and later success as a leader. Within the sub-sample of former drivers, those with the longest driving careers go on to be the most successful leaders.
    Keywords: expert leaders, leadership, organizational performance, high-tech, teams
    JEL: J33 M5 D22 O32 J24
    Date: 2012–07
  10. By: Florian Noseleit; Rene Söllner
    Abstract: In this paper we study the impact of diversity on regional growth by extending the existing literature in such that we differentiate between industry diversity and human capital diversity. In order to measure human capital diversity we construct a regional measure based on individual occupational data. In fact, based on panel data for German regions we find empirical evidence that regions with higher degrees of human capital diversity exhibit higher GDP-per-capita and employment growth, as well as higher patent-output per R&D-worker. So far the empirical literature whether regional specialization or regional diversification encourage knowledge spillover and therefore promote regional growth mainly focused on the diversity of the regional industry structure and thus disregards that knowledge transmission merely occurs between individuals. This was already described by Jacobs (1969), and is also recognized by Glaeser et al. (1992) who emphasize the importance of interaction between people in close geographical distance for innovation. Nevertheless, the existing literature typically relies on the regional industry diversity as an indicator for the breadth of the local knowledge base. However, we argue that the diversity of skills and knowledge at the individual level rather than the diversity of industries reflects the scope of the local knowledge base and the potential for spillover. A more fruitful approach should therefore take a more disaggregated view on this topic by looking at the diversity of skills and abilities at the level of individuals. We apply two strategies to assure that human capital diversity is not just a proxy of the regional industrial structure. First we calculate a variable for the regional industry diversity equivalent to the occupational diversity using regional industry employment shares at the three digit industry level. Second we incorporate regional employment shares of 27 out of 28 aggregated industries as additional explanatory variables in our regression. Furthermore, skill complementarity and substitutability in production, as well as differences in the importance of knowledge spillovers should be addressed with a detailed consideration of changes in the regional industry structure.
    Date: 2011–09
  11. By: Hoogendoorn, Sander M. (University of Amsterdam); van Praag, Mirjam (University of Amsterdam)
    Abstract: One of the most salient and relevant dimensions of team heterogeneity is ethnicity. We measure the causal impact of ethnic diversity on the performance of business teams using a randomized field experiment. We follow 550 students who set up 45 real companies as part of their curriculum in an international business program in the Netherlands. We exploit the fact that companies are set up in realistic though similar circumstances and that we, as outside researchers, had the unique opportunity to exogenously vary the ethnic composition of otherwise randomly composed teams. The student population consists of 55% students with a non-Dutch ethnicity from 53 different countries of origin. We find that a moderate level of ethnic diversity has no effect on team performance in terms of business outcomes (sales, profits and profits per share). However, if at least the majority of team members is ethnically diverse, then more ethnic diversity has a positive impact on the performance of teams. In line with theoretical predictions, our data suggest that this positive effect could be related to the more diverse pool of relevant knowledge facilitating (mutual) learning within ethnically diverse teams.
    Keywords: ethnic diversity, team performance, field experiment, entrepreneurship, (mutual) learning
    JEL: J15 L25 C93 L26 M13 D83
    Date: 2012–07
  12. By: Lorenzo Caliendo (School of Management, Yale University); Ferdinando Monte (Johns Hopkins University); Esteban Rossi-Hansberg (Princeton University)
    Abstract: We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into 'layers' using occupational categories. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. In addition, the probability of adding (dropping) a layer is very positively (negatively) correlated with value added. We then explore the changes in the wages and number of employees that accompany expansions in layers, output, or markets (by becoming exporters). The empirical results indicate that reorganization, through changes in layers, is key to understand how firms expand and contract. For example, we find that firms that expand substantially add layers and pay lower average wages in all pre-existing layers. In contrast, firms that expand little and do not reorganize pay higher average wages in all pre-existing layers.
    JEL: D22 F16 J24 J31 L23
    Date: 2012–07
  13. By: Vetter, Stefan
    Abstract: We study experimentally whether anti-corruption policies with a focus on bribery might be insufficient to uncover more subtle ways of gaining an unfair advantage. In particular, we investigate whether an implicit agreement to exchange favors between a decision-maker and a lobbying party serves as a legal substitute for corruption. Due to the obvious lack of field data on these activities, the laboratory provides an excellent opportunity to study this question. We find that even the pure anticipation of future rewards from a lobbying party suffices to bias a decision-maker in favor of this party, even though it creates negative externalities to others. Although future rewards are not contractible, the benefitting party voluntarily compensates decision-makers for partisan choices. In this way, both receive higher payoffs, but aggregate welfare is lower than without a rewards channel. Thus, the outcome mirrors what might have been achieved via conventional bribing, while not being illegal.
    Keywords: delegation; gift exchange; corruption; lobbying; negative externalities
    JEL: C91 D62 D63 D73 K42
    Date: 2012–03
  14. By: Nieken, Petra; Schmitz, Patrick W.
    Abstract: This paper reports data from a laboratory experiment on two-period moral hazard problems. The findings corroborate the contract-theoretic insight that even though the periods are technologically unrelated, due to incentive considerations principals can benefit from offering long-term contracts that exhibit memory.
    Keywords: Repeated moral hazard; Sequential hidden actions; Laboratory experiment
    JEL: D82 J33
    Date: 2012–02
  15. By: Christian Dreger; Georg Erber; Daniela Glocker
    Abstract: The accumulation of the human capital stock plays a key role to explain the economic performance across regions. However, empirical evidence for this claim has been not very convincing, probably due to low quality of the data. This paper provides a robustness analysis of alternative human capital measures available for EU regions. Examining the spatial dimension can offer new insights. Most strikingly, the amount of information is tremendously enlarged. Studies based on country level data are based on heterogeneous economies to obtain a high number of observations. The heterogeneity is not fully captured by fixed effects. As the EU or at least the old and the new member states are more homogeneous geographical areas, the quality of the results should be enhanced. In addition to univariate measures of human capital, composite indicators are discussed. To examine the robustness of the results, different aggregation methods are considered. The reliability of alternative indicators is explored by the Krueger and Lindahl (2001) approach. Indicators based on wage regressions are also presented, see Mulligan and Sala-i-Martin (1997) and Gershuny and Kun (2002). Due to data availability, the latter analysis is carried out for only for German regions. The analysis shows a significant impact of construction techniques on the quality of indicators. While composite indicators and labour income measures point to the same direction, their correlation is not very high. Moreover, popular indicators should be applied with caution. Schooling and human ressources in science and technology can only explain some part, but not the bulk of the experience.
    Date: 2011–09
  16. By: Vincenzo Carrieri (Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno, Italy); Cinzia Di Novi (Dipartimento di EconomiaUniversità Ca' Foscari, Venezia, Italy); Rowena Jacobs (Centre for Health Economics, University of York, UK); Silvana Robone (Centre for Health Economics, University of York, UK and Dipartimento di Scienze Economiche, Università di Bologna, Italy)
    Abstract: Working conditions in Western countries have changed dramatically in the last twenty years, witnessing the emergence of new forms of employment contracts. The number of "standard" fulltime permanent jobs has decreased, while non-standard work arrangements such as temporary, contingent or part-time contracts have become much more common. This paper analyses the impact of temporary contracts and job insecurity on well-being among younger Italian employees. We use the "Health Conditions and Use of the Health Service Survey" carried out by the Italian National Institute of Statistics in conjunction with the Bank of Italy's Survey on Households Income and Wealth (SHIW). We consider four dimensions of individual well-being: physical health, mental health, self-assessed health and happiness. To account for individual heterogeneity we match each temporary worker with a permanent worker using propensity score matching. Well-being of matched individuals is compared to estimates of the average effect of working with a temporary as opposed to a permanent contract. Our analysis reveals a negative relationship between psychological well-being, happiness and having a temporary job and is particularly marked for males.
    Keywords: health, happiness, psychological well-being, young employees, fixed-term contracts
    JEL: I12 J08
    Date: 2012–07

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