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on Human Capital and Human Resource Management |
| By: | Brice Corgnet (Argyros School of Business and Economics, Chapman University); Roberto Hernán González (Universidad de Granada); Stephen Rassenti (Economic Science Institute, Chapman University) |
| Abstract: | Holmström (1982) established that free riding behaviors are pervasive whenever people are paid according to aggregate measures of output such as team incentives. However, team incentives have been found to be particularly effective both in the lab and in the field. In this paper we show, in line with Holmström (1982), that shirking behaviors in teams are indeed pervasive. Production levels were significantly lower under team incentives than under individual incentives while the time dedicated to on-the-job leisure activities (Internet usage) was significantly larger under team incentives than under individual incentives. Subsequently, we find that a very weak form of peer monitoring (anonymous and without physical proximity, verbal threats or face to face interactions) allowed organizations using team incentives to perform as well as those using individual incentives. This provides strong evidence for the conjecture of Kandel and Lazear (1992) that peer pressure may resolve the moral hazard in teams problem. |
| Keywords: | Incentives, free-riding, monitoring, peer pressure, organization theory |
| JEL: | C92 D23 M52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:13-01&r=hrm |
| By: | Bénabou, Roland; Tirole, Jean |
| Abstract: | This paper analyzes the impact of labor market competition and skill-biased technical change on the structure of compensation. The model combines multitasking and screening, embedded into a Hotelling-like framework. Competition for the most talented workers leads to an escalating reliance on performance pay and other high-powered incentives, thereby shifting effort away from less easily contractible tasks such as long-term investments, risk management and within-firm cooperation. Under perfect competition, the resulting efficiency loss can be much larger than that imposed by a single firm or principal, who distorts incentives downward in order to extract rents. More generally, as declining market frictions lead employers to compete more aggressively, the monopsonistic underincentivization of low-skill agents first decreases, then gives way to a growing overincentivization of high-skill ones. Aggregate welfare is thus hill-shaped with respect to the competitiveness of the labor market, while inequality tends to rise monotonically. Bonus caps and income taxes can help restore balance in agents' incentives and behavior, but may generate their own set of distortions. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26676&r=hrm |
| By: | Hoppe, Eva I. |
| Abstract: | We consider an adverse selection model in which the agent can gather private information before the principal offers the contract. There are two scenarios. In scenario I, information gathering is a hidden action, while in scenario II, the principal observes the agent's information gathering decision. We study how the two scenarios differ with respect to the agent's expected rent, the principal's expected profit, and the expected total surplus. In particular, it turns out that the principal may be better off when the agent's information gathering decision is a hidden action. |
| Keywords: | Hidden information; adverse selection; information gathering |
| JEL: | D86 D82 C72 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43647&r=hrm |
| By: | Ann-Sofie Kolm; Mirco Tonin |
| Abstract: | Welfare benefits in the Nordic countries are often tied to employment. We argue that this is one of the factors behind the success of the Nordic model, where a comprehensive welfare state is associated with high employment. In a general equilibrium setting, the underlining mechanism works through wage moderation and job creation. The benefits make it more important to hold a job, thus lower wages will be accepted, and more jobs created. Moreover, we show that the incentive to acquire higher education improves, further boosting employment in the long run. These positive effects help counteracting the negative impact of taxation. |
| Date: | 2012–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:ceu:econwp:2013_1&r=hrm |
| By: | Michael Bognanno (Department of Economics, Temple University); Eduardo Melero (Department of Business Administration, Universidad Carlos III de Madrid) |
| Abstract: | This paper examines whether more informative job promotions carry larger wage increases. In job assignment models with asymmetric information, unexpected promotions send a signal to the external labor market to revise upward their assessment of a worker’s ability. The employing firm must then increase wages to prevent the worker from being bid away. Less educated workers are assumed to come from a group with lower average ability. Their promotion is hypothesized to signal a larger positive assessment of their ability than for more highly educated workers for whom promotion is expected. Promotions for younger workers, with less known about their abilities, should also result in strong signaling effects. We find results in accordance with our hypotheses regarding the effect of both age and education on the gains to promotion. However, the statistical significance of the estimates hinges on the promotion definition. Younger workers receive statistically significantly higher wage increases upon promotion only when promotion is defined by the attainment of managerial responsibilities not previously held. Less educated workers obtain statistically significantly larger wage increases upon promotion at a weak level of significance (10%) across definitions of promotion but at a high level of significance (5%) only when the subjective definition of promotion is used. We interpret the sensitivity to the definition of promotion to suggest that promotions may be heterogeneous in the information they reveal about the employee in way that depends on the characteristics of the employee. |
| Keywords: | promotion, signaling, internal labor markets |
| JEL: | J3 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:tem:wpaper:1205&r=hrm |
| By: | Iossa, Elisabetta (DEF, University of Rome Tor Vergata, CEPR, CMPO and EIEF); Rey, Patrick (TSE,IDEI) |
| Abstract: | We study how career concerns affect the dynamics of incentives in a multi-period contract, when the agent’s productivity can evolve exogenously (random shocks) or improve endogenously through investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long-term contracts may strengthen reputational effects whereas short-term contracting may be optimal when investment has persistent, long-term effects. |
| Keywords: | Career concerns, contract duration,contract renewal, reputation and dynamic incentives. |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26678&r=hrm |
| By: | Christian Belzil (Economics Department, Ecole Polytechnique); Michael Bognanno (Department of Economics, Temple University); Francois Poinas (Toulouse School of Economics) |
| Abstract: | This article estimates a dynamic reduced-form model of intra-firm promotions using an employer-employee panel of over 300 of the largest corporations in the U.S. in the period from 1981 to 1988. The estimation conditions on unobserved individual heterogeneity and allows for both an endogenous initial condition and sample attrition linked to individual heterogeneity in demonstrating the relative importance of variables that influence promotion. The role of the executive's functional area in promotion is considered along with the existence and source of promotion fast tracks. We find that while the principal determinant of promotions is unobserved individual heterogeneity, functional area has a high explanatory power, resulting in promotion probabilities that differ by functional area for executives at the same reporting level and firm. No evidence is found that an executive's recent speed of advancement in pay grade has a causal impact on in- sample promotions after conditioning on the executive’s career speed of advancement. For high-level executives, fast tracks appear to result from heterogeneity in persistent individual characteristics, not from an inherent benefit in recent advancement itself. |
| Keywords: | promotion, fast track, functional area, dynamic discrete choice |
| JEL: | C33 M5 M51 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:tem:wpaper:1206&r=hrm |
| By: | Pfeffer, Jeffrey (Stanford University); DeVoe, Sanford E. (University of Toronto) |
| Abstract: | People acquire ways of thinking about time partly in and from work organizations, where the control and measurement of time use is a prominent feature of modern management--an inevitable consequence of employees selling their time for money. In this paper, we theorize about the role organizational practices play in promoting an economic evaluation of time and time use--where time is thought of primarily in monetary terms and viewed as a scarce resource that should be used as efficiently as possible. While people usually make decisions about time and money differently, we argue that management practices that make the connection between time and money salient can heighten the economic evaluation of time. We consider both the organizational causes of economic evaluation as well as its personal and societal consequences. |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:2123&r=hrm |
| By: | Kouroche Vafaï (Université Paris Descartes - Sorbonne Paris Cité - IUT, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne) |
| Abstract: | To control, evaluate, and motivate their agents, firms employ supervisors. As shown by empirical investigations, biased evaluation by supervisors linked to collusion is a persistent feature of firms. This paper studies how deceptive supervision affects agency relationships. We consider a three-level firm where a supervisor is in charge of producing a verifiable report on an agent's output. Depending on the output he has observed, the supervisor may either collude with the agent or with the principal, and make an uniformative report. We show that the proliferation of collusive activities in firms : modifies the configuration of the optimal preventive policy, may increase the expected cost of preventing each type collusion, is beneficial to the supervisor and detrimental to the agent, and is not always harmful. |
| Keywords: | Firm; group decision; control; biased supervision |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00768900&r=hrm |
| By: | RanÄ‘elovicÌ, SasÌŒa; RakicÌ, Jelena ZÌŒarkovicÌ |
| Abstract: | Inactivity and unemployment rates as well as informal employment rates in Serbia are particularly high among low-paid labor. Labour tax wedge is average at higher wage levels, but high at lower wage levels. The relatively high labour tax burden for low-paid employees is due to several reasons. The most important one is the existence of mandatory minimum base for social security contribution (SSC). This paper uses the tax and benefit micro-simulation model for Serbia (SRMOD), which is based upon EUROMOD platform, in order to evaluate the effects of the abolishment of mandatory minimum SSC base on labour supply incentives. We found that this policy reform would reduce effective average tax rates by more than it would reduce marginal tax rates implying a larger participation response than hours-of-work response. A decrease in both tax rates is most pronounced for lower income groups. |
| Date: | 2012–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em11-12&r=hrm |
| By: | Cho, In Soo; Orazem, Peter |
| Abstract: | In Lazear (2005)’s model of entrepreneurship, individuals with more diverse academic and occupational training are more likely to become entrepreneurs, while more narrowly trained individuals become employees. We examine whether Lazear’s model can also explain which individuals become nonprofit entrepreneurs. Information on successive cohorts of college graduates from a single university from 1982-2006 show that observed diversity of academic and occupational skills increases the probability of nonprofit sector entrepreneurship, consistent with previous findings of for-profit entrepreneurs. In addition, unobservable talents that increase probability of for-profit start-ups are positively correlated with the unobservable skills that lead to nonprofit start-ups, consistent with a presumed entrepreneurial skill that underlies the Lazear’s Jacks-of-All-Trades model. |
| Keywords: | Entrepreneurship; Non-profit; Jacks-of-All-Trades theory; Balanced skills |
| JEL: | L26 L31 M5 |
| Date: | 2013–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:35750&r=hrm |
| By: | Chang-Tai Hsieh; Erik Hurst; Charles I. Jones; Peter J. Klenow |
| Abstract: | Over the last 50 years, there has been a remarkable convergence in the occupational distribution between white men, women, and blacks. We measure the macroeconomic consequences of this convergence through the prism of a Roy model of occupational choice in which women and blacks face frictions in the labor market and in the accumulation of human capital. The changing frictions implied by the observed occupational convergence account for 15 to 20 percent of growth in aggregate output per worker since 1960. |
| JEL: | J70 O40 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18693&r=hrm |
| By: | Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); Matthew W. McCarter (Argyros School of Business and Economics, Chapman University) |
| Abstract: | A common finding in social sciences is that member change hinders group functioning and performance. However, questions remain as to why member change negatively affects group performance and what are some ways to alleviate the negative effects of member change on performance? To answer these questions we conduct an experiment in which we investigate the effect of newcomers on a group’s ability to coordinate efficiently. Participants play a coordination game in a four-person group for the first part of the experiment, and then two members of the group are replaced with new participants, and the newly formed group plays the game for the second part of the experiment. Our results show that the arrival of newcomers decreases trust among group members and this decrease in trust negatively affects group performance. Knowing the performance history of the arriving newcomers mitigates the negative effect of their arrival, but only when newcomers also know the oldtimers performance history. Surprisingly, in groups that performed poorly prior to the newcomers’ arrival, the distrust generated by newcomers is mainly between oldtimers about each other rather than about the newcomers. |
| Keywords: | coordination, group performance, oldtimers, newcomers, trust, experiments |
| JEL: | C72 C91 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:13-02&r=hrm |
| By: | Kouroche Vafaï (Université Paris Descartes - Sorbonne Paris Cité - IUT, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne) |
| Abstract: | We determine the optimal policy to cope with information concealment in a hierarchy where a principal relies on a supervisor to obtain verifiable information about an agent's output. Depending on the information he has obtained, the informed supervisor may either collude with the agent or with the principal and conceal information. The principal has the choice of four policies to cope with information concealment : it can prevent both types of information concealment, allow both of them, or prevent one of them and allow the other one. We characterize the incentive contracts in this environment and show that it is not optimal to allow information concealment, that is, the optimal policy of a hierarchy exposed to multiple types of information concealment is to prevent them all. |
| Keywords: | Hierarchy; information concealment |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00768904&r=hrm |
| By: | Cremer, Helmuth (TSE, (IDEI and Institut universitaire de France)); Pestieau, Pierre (TSE, (CREPP, University of Liège, CORE, UCL)); Roeder, Kerstin (LMU) |
| Abstract: | This paper studies how the risk of divorce a¤ects the human capital decisions of a young couple. We consider a setting where complete specialization (one of the spouses uses up all the education resources) is optimal with no divorce risk. Symmetry in education (both spouses receive an equal amount of education) then acts like an insurance device in case of divorce particularly when the institutions do not compensate for di¤erences in earnings. But, at the same time symmetry in education is less e¢ cient than the extreme specialization. This is the basic tradeo¤ underlying our analysis. We show that the symmetric allocation will become more attractive as the probability of divorce increases, if risk aversion is high and/or labor supply elasticity is low. However, it is only a ?second-best? solution as the insurance protection is achieved at the expense of an e¢ ciency loss. E¢ ciency can be restored through suitably designed marriage contracts because they can provide the appropriate insurance against divorce to a couple who opts for specialization. Finally, we study how the (economic) use of marriage is a¤ected by the possibility of divorce. |
| Keywords: | post-marital education, marriage contract, divorce |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26591&r=hrm |