nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2013‒02‒03
twenty-one papers chosen by
Tommaso Reggiani
University of Cologne

  1. Monetary Reference Points of Managers: An Empirical Investigation of Status Quo Preferences and Social Comparisons By Grund, Christian; Martin, Johannes
  2. Base Salaries, Bonus Payments, and Work Absence among Managers in a German Company By Pfeifer, Christian
  3. Human Capital and Competition: Strategic Complementarities in Firm-based Training By Margaret Stevens
  4. Do Entrepreneurs Matter? By Becker, Sascha O.; Hvide, Hans K.
  5. International migration, human capital formation, and saving By Stark, Oded; Dorn, Agnieszka
  6. Gaming and Strategic Ambiguity in Incentive Provision By Margaret Meyer; Florian Ederer; Richard Holden
  7. Relational Incentive Contracts with Persistent Private Information By James Malcomson
  8. Absenteeism, Unemployment and Employment Protection Legislation: Evidence from Italy By Scoppa, Vincenzo; Vuri, Daniela
  9. The impact of corporate taxes and flexibility on entrepreneurial decisions with moral hazard and simultaneous firm and personal level taxation By Meißner, Fabian; Schneider, Georg; Sureth, Caren
  10. The Limits to Compensation in the Financial Sector By H Peyton Young; Thomas Noe
  11. Team Dynamics and the Marshmallow Challenge: studying team performance and personal satisfaction with a focus on verbal interactions By Hanna Daoudy; Michel Verstraeten
  12. In-Work Benefits and the Nordic Model By Kolm, Ann-Sofie; Tonin, Mirco
  13. A two-country model of high skill migration with public education By Claire Naiditch; Radu Vranceanu
  14. Asymmetric Information between Employers By Kahn, Lisa B.
  15. Beyond environmental scarcity: Human and social capital as driving forces of bootstrapping activities By D. GRICHNICK; J. BRINCKMAN; L. SINGH; S. MANIGART
  16. Does Education Matter for Economic Growth? By Delgado, Michael S.; Henderson, Daniel J.; Parmeter, Christopher F.
  17. Why We Fight: Understanding Military Participation Over the Life Cycle. Journal of Human Capital, vol. 6, no. 4 By David R. Mann
  18. Aligning Learning Incentives of Students and Teachers: Results from a Social Experiment in Mexican High Schools By Jere H. Behrman; Susan W. Parker; Petra E. Todd; Kenneth I. Wolpin
  19. Absorptive capacity, innovation cooperation and human-capital. Evidence from 3 European countries By Chiara Franco; Alberto Marzucchi; Sandro Montresor
  20. Working Over Time: Dynamic Inconsistency in Real Effort Tasks By Ned Augenblick; Muriel Niederle; Charles Sprenger
  21. Voluntary work and labour income By Bruno, Bruna; Fiorillo , Damiano

  1. By: Grund, Christian (RWTH Aachen University); Martin, Johannes (RWTH Aachen University)
    Abstract: We assemble two reference point based concepts of utility in our empirical study: the own previous status quo and social comparisons. We explore the relative relevance of these concepts for total compensation as well as for different parts of the compensation package of managers. Making use of a unique panel data set of managers of the German chemical sector, we find that social comparisons of compensation indeed affect reported job satisfaction. Managers compare their total compensation (and fixed salary) with others in the chemical sector and report lower satisfaction scores when they earn less than similar managers. We find hardly any evidence for the relevance of status quo preferences.
    Keywords: compensation, job satisfaction, reference points, social comparisons, status quo preferences
    JEL: M5 J28 J31
    Date: 2012–12
  2. By: Pfeifer, Christian (Leuphana University Lüneburg)
    Abstract: Questions about compensation structures and incentive effects of pay-for-performance components are important for firms' Human Resource Management as well as for economics in general and labor economics in particular. This paper provides scarce insider econometric evidence on the structure and the incentive effects of fixed base salaries, paid bonuses, and agreed bonuses under a Management-by-Objectives (MBO) incentive scheme. Six years of personnel data of 177 managers in a German company are analyzed. The main findings are: (1) base salaries increase significantly with age, whereas bonuses decrease with age; (2) larger agreed bonuses are correlated with fewer absent working days.
    Keywords: absenteeism, bonus, effort, incentives, insider econometrics, wages
    JEL: J22 J24 J31 J33 M12 M52
    Date: 2012–12
  3. By: Margaret Stevens
    Abstract: Vocational training systems differ markedly between countries. A model of firm-based human capital investment predicts equilibria characterised by particular patterns of training and job-to-job mobility, consistent with observed cross-country differences. Incentives to invest in human capital are determined jointly with labour turnover and the intensity of competition between employers for skilled workers, and the dependence of labour market conditions on human capital leads to strategic complementarity between training decisions. Depending on the extent of market frictions and match heterogeneity, we may expect to see either equilibria characterised by general training, steep wage profiles and high mobility; or equilibria in which both general and specific investment may occur, but turnover is low and wage profiles are relatively flat. Multiple equilibria are possible, in which case high turnover equilibria generate higher welfare.  
    Keywords: Human capital, labor turnover, specific training, general training, search, matching
    JEL: J24 J63
    Date: 2012–11–05
  4. By: Becker, Sascha O. (University of Warwick); Hvide, Hans K. (University of Bergen)
    Abstract: In the large literature on firm performance, economists have given little attention to entrepreneurs. We use deaths of more than 500 entrepreneurs as a source of exogenous variation, and ask whether this variation can explain shifts in firm performance. Using longitudinal data, we find large and sustained effects of entrepreneurs at all levels of the performance distribution. Entrepreneurs strongly affect firm growth patterns of both very young firms and for firms that have begun to mature. We do not find significant differences between small and larger firms, family and non-family firms, nor between firms located in urban and rural areas, but we do find stronger effects for founders with high human capital. Overall, the results suggest that an often overlooked factor – individual entrepreneurs – plays a large role in affecting firm performance.
    Keywords: entrepreneurship, firm performance, human capital
    JEL: D21 D24 J23 L11 L25 G39
    Date: 2013–01
  5. By: Stark, Oded; Dorn, Agnieszka
    Abstract: In the model of Stark et al. (1997, 1998), the possibility of employment in a developed country raises the level of human capital acquired by workers in the developing country. We show that this result holds even when workers have the option to save. --
    Keywords: Human capital formation,Savings,Intertemporal choice,Prospect of migrating
    JEL: D91 F22 J22 J24
    Date: 2013
  6. By: Margaret Meyer; Florian Ederer; Richard Holden
    Abstract: It is often suggested that incentive schemes under moral hazard can be gamed by an agent with superior knowledge of the environment, and that deliberate lack of transparency about the incentive scheme can reduce gaming.  We formally investigate these arguments.  Ambiguous incentive schemes induce more balanced efforts from an agent who performs multiple tasks and is better informed about the environment, but also impose more risk on the agent.  If tasks are sufficiently complementary for the principal, ambiguous schemes can dominate the best deterministic scheme and can completely eliminate the efficiency losses from the agent's better knowledge of the environment.
    Keywords: Contracts, incentives, gaming, strategic ambiguity, randomization
    JEL: L13 L22
    Date: 2013–01–17
  7. By: James Malcomson
    Abstract: This paper investigates relational incentive contracts with a continuum of privatelyobservedagent types that are persistent over time. For a sufficiently productive relationship,a pooling contract exists in which all agent types continuing the relationshipchoose the same action. Necessary and sufficient conditions are given for some separationto be feasible; the parties can then do better than with full pooling. When futureactions are optimal, however, separation of all types is not possible; the finest separationachievable is into partitions each containing a non-degenerate interval of types.Separation always involves lower output initially than after separation has occurred.
    Keywords: Relational incentive contracts, private information, ratchet effect, dynamic enforcement
    JEL: C73 D82 D86
    Date: 2012–12–04
  8. By: Scoppa, Vincenzo (University of Calabria); Vuri, Daniela (University of Rome Tor Vergata)
    Abstract: Efficiency wages theories argue that the threat of firing, coupled with a high unemployment rate, is a mechanism that discourages employee shirking in asymmetric information contexts. Our empirical analysis aims to verify the role of unemployment as a worker discipline device, considering the different degree of job security offered by the Italian Employment Protection Legislation to workers employed in small and large firms. We use a panel of administrative data (WHIP) and consider sickness absences as an empirical proxy for employee shirking. Controlling for a number of individual and firm characteristics, we investigate the relationship between worker's absences and local unemployment rate (at the provincial level). We find a strong negative impact of unemployment on absenteeism rate, which is considerable larger in small firms due to a significantly lower protection from dismissals in these firms. We also find that workers who are absent more frequently face higher risks of dismissal. As an indirect test of the role of unemployment as worker's discipline device we show that public sector employees, almost impossible to fire, do not react to the local unemployment.
    Keywords: employment protection legislation, absenteeism, shirking, unemployment
    JEL: J41 M51 J45
    Date: 2012–12
  9. By: Meißner, Fabian; Schneider, Georg; Sureth, Caren
    Abstract: In this paper we investigate the incentive effects of corporate taxes in an agency setting with a principal facing an investment opportunity including an abandonment option. We are particularly interested in the interplay of taxation and the real option on the principal's incentives to motivate the agent to work hard. First, we extend the well-known studies on tax effects on decision making under uncertainty to moral hazard settings. In a benchmark case we find that, as confirmed in current literature, the corporate income tax has no incentive effect. If the principal accounts for the real option we show that paradoxical tax effects may occur. Also, with respect to the effect of the real option on the incentive problem we show that the option makes it less attractive for the principal to induce the agent to exert a high effort. --
    Keywords: Tax Effects,Real Options,Moral Hazard,Investment Decisions
    Date: 2013
  10. By: H Peyton Young; Thomas Noe
    Abstract: In recent years bonuses tied to performance have become commonplace in banks and other financial institutions; indeed they now constitute a major part of employee compensation.  The practice was originally justified by academic work on principal-agent contracts, which argued that performance bonuses would better align the interests of managers and shareholders.  In this article we argue that such schemes are not well-suited to aligning these interests in the financial sector.  There are two reasons for this failure.  First, new financial products make it easy to create the appearance of superior performance over long periods of time even though the outsize returns are merely being driven by hidden tail risk.  We show that it is virtually impossible to create performance contracts that get around this problem.  Second, the complexity of new products and the size of modern financial institutions make it extremely difficult (and costly) to monitor risky activities directly.  As in the first case, compensation schemes, including deferred compensation, are inefficient substitutes because it is easy to escape detection for long periods of time.  This opens the door for outright fraud.  We argue that a greater emphasis on ethical values, e.g., a duty of care to customers and shareholders, is more likely to produce effective reforms.
    Keywords: Performance bonus, incentive contract, tail risk
    JEL: G20 G28 D86
    Date: 2012–12–12
  11. By: Hanna Daoudy; Michel Verstraeten
    Abstract: The present study analyses the impacts of verbal interactions as well as the team’s international diversity on team performance and on team members’ satisfaction during a game called the Marshmallow Challenge. Ninety-one students from a business school participated in the game, forming twenty-three teams. The purpose was to construct the highest freestanding structure with 20 sticks of spaghettis and a marshmallow on top. Participants only had eighteen minutes to achieve this goal. The variables were measured through observations and through individual questionnaires. Results show that verbal interactions played a critical role on both performance and satisfaction. Teams where some of the members spoke more than others were more likely to achieve higher performance. Members in these teams were also more satisfied regarding the team outcome. Furthermore, open discussions in teams decreased the members’ communication process satisfaction. Finally interesting results appeared in international teams. For instance, the average level of anger and frustration was highest in these teams. This in turn had an impact on personal satisfaction. More specifically, the team’s international diversity affected negatively the members’ communication process satisfaction. Taken together, these findings show that communication strongly affected performance and satisfaction and it significantly influenced members’ willingness to remain in the same team. Despite these observations, the current study presents some limitations that will be discussed and that should be taken into account for further research.
    Keywords: team performance; team members’ satisfaction; verbal interactions
    Date: 2013–01–24
  12. By: Kolm, Ann-Sofie (Stockholm University); Tonin, Mirco (University of Southampton)
    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.
    Keywords: Nordic model, in-work benefits, wage adjustment, unemployment, education, skill formation, earnings
    JEL: H24 J21 J24
    Date: 2012–12
  13. By: Claire Naiditch (Laboratoire économie quantitative intégration politiques publiques économétrie - Université de Lille 1); Radu Vranceanu (Economics Department - ESSEC Business School)
    Abstract: This paper proposes a two-country model of migration in a transferable skill sector, where workers education is provided free of charge by governments. We study …firstly the non-cooperative equilibrium where the poor country decides on the education level and the rich country decides on the quota of skilled migrants. Additional migration raises earnings prospects in the source country and attracts more talented people to that profession, what we refer to as the sector-speci…c brain gain e¤ect. This game presents a single stable equilibrium with positive migration. Compared to the cooperative equilibrium, in the non-cooperative equilibrium the poor country systematically under-invests in education. Whether migration is too strong or too weak depends on the size of the brain gain e¤ect. Furthermore, the size of the welfare gain to be reaped by moving from non-cooperative to the cooperative organization of migration also depends on the strength of the sector-speci…c brain gain.
    Keywords: High-skill migration ; Brain-gain ; Public education ; Human capital ; Government
    Date: 2013–01–21
  14. By: Kahn, Lisa B. (Yale University)
    Abstract: Employer learning about workers' abilities plays a key role in determining how workers sort into jobs and are compensated. This study explores whether learning is symmetric or asymmetric, i.e., whether potential employers have the same information about worker ability as the incumbent firm. I develop a model of asymmetric learning that nests the symmetric learning case and allows the degree of asymmetry to vary, yielding testable implications for the prevalence of asymmetric learning. I then show how predictions in the model can be tested using compensation data. Using the NLSY, I test the model and find strong support for asymmetric information. I first exploit the fact that groups of workers differ in their variances in ability – based on economic conditions at time of entry into a firm – to show that incumbent wages track differences in ability distributions more closely than do outside firm wages. Second, I show that learning about ability is more symmetric for occupations that require more communication outside the firm. Finally, I show how to uncover the key parameter of interest in my model representing the degree to which information is asymmetric. My estimates imply that in one period, outside firms reduce the average expectation error over worker ability by roughly a third of the reduction made by incumbent firms. Thus outside firms retain sizeable expectation errors due to asymmetric information.
    Keywords: asymmetric information, personnel economics, employer learning
    JEL: D21 D83 J33
    Date: 2013–01
    Abstract: Although entrepreneurship scholars highlight bootstrapping as an important resource acquisition approach to respond to the inherent resource constraints which nascent ventures face, little is known about what causes nascent ventures to engage in bootstrapping. Theory highlights the environment as an important determinant of bootstrapping activity. Analyzing bootstrapping behavior of 298 nascent ventures, we find that beyond environmental factors, individual characteristics of the nascent entrepreneurs and factors relating to the embeddedness of the entrepreneurs in the environment determine their venture’s bootstrapping behavior. In a more fine-grained analysis we gain insights how theses antecedents shape the use of particular bootstrap strategies. Findings contribute to our understanding of how early resource management approaches are developed in nascent ventures.
    Keywords: Bootstrapping, Human capital, Social capital, Environmental munificence, Nascent ventures
    JEL: G01 G21 G28 H6
    Date: 2013–01
  16. By: Delgado, Michael S. (Purdue University); Henderson, Daniel J. (University of Alabama); Parmeter, Christopher F. (University of Miami)
    Abstract: Empirical growth regressions typically include mean years of schooling as a proxy for human capital. However, empirical research often finds that the sign and significance of schooling depends on the sample of observations or the specification of the model. We use a nonparametric local-linear regression estimator and a nonparametric variable relevance test to conduct a rigorous and systematic search for significance of mean years of schooling by examining five of the most comprehensive schooling databases. Contrary to a few recent papers that have identified significant nonlinearities between education and growth, our results suggest that mean years of schooling is not a statistically relevant variable in growth regressions. However, we do find evidence (within a cross-sectional framework), that educational achievement, measured by mean test scores, may provide a more reliable measure of human capital than mean years of schooling.
    Keywords: mean years of schooling, human capital, irrelevant variables, significance testing, nonparametric
    JEL: C14 J24 I20 O10 O40
    Date: 2012–12
  17. By: David R. Mann
    Keywords: Military Participation, Human Capital, National Longitudinal Survey of Youth, Labor; Health
    JEL: I J
    Date: 2012–12–30
  18. By: Jere H. Behrman (Department of Economics, University of Pennsylvania); Susan W. Parker (Center for Research and Teaching in Economics(CIDE) Mexico); Petra E. Todd (Department of Economics, University of Pennsylvania); Kenneth I. Wolpin (Department of Economics, University of Pennsylvania)
    Abstract: This paper evaluates the impact of three different performance incentives schemes using data from a social experiment that randomized 88 Mexican high schools with over 40,000 students into three treatment groups and a control group. Treatment one provides individual incentives for performance on curriculum-based mathematics tests to students only, treatment two to teachers only and treatment three gives both individual and group incentives to students, teachers and school administrators. Program impact estimates reveal the largest average effects for treatment three, smaller impacts for treatment one and no impact for treatment two.
    Keywords: student, teacher, and group incentives, randomized social experiment, Mexican high schools
    JEL: O1
    Date: 2012–10–01
  19. By: Chiara Franco (Catholic University of Milan); Alberto Marzucchi (Catholic University of Milan); Sandro Montresor (JRC-IPTS)
    Abstract: The paper aims at extending the analysis of the firm’s absorptive capacity (AC) by taking stock of its manifold nature. Innovation cooperation is recognised as one of its antecedents, along with R&D, but with different possible outcomes, depending on the kind of partner. Human capital is claimed to be as important as other organisational mechanisms for the AC impact on innovation. The empirical application, carried out on about 10,500 firms located in 3 EU countries (i.e. Germany, Italy and Spain), confirms the role of these factors. Interacting with research organisations, for example, increases the firm’s AC providing it occurs within the national boundaries. The transformation of AC into actual innovation is favoured by the human capital of the firm, while it is actually hampered by socialisation mechanisms of an organisational nature.
    Keywords: Absorptive capacity – Innovation cooperation – Human capital
    JEL: O33 O32 J24
    Date: 2012–11
  20. By: Ned Augenblick; Muriel Niederle; Charles Sprenger
    Abstract: Experimental tests of dynamically inconsistent time preferences have largely relied on choices over time-dated monetary rewards. Several recent studies have failed to find the standard patterns of time inconsistency. However, such monetary studies contain often discussed confounds. In this paper, we sidestep these confounds and investigate choices over consumption (real effort) in a longitudinal experiment. We pair those effort choices with a companion monetary discounting study. We confirm very limited time inconsistency in monetary choices. However, subjects show considerably more present bias in effort. Furthermore, present bias in the allocation of work has predictive power for demand of a meaningfully binding commitment device. Therefore our findings validate a key implication of models of dynamic inconsistency, with corresponding policy implications.
    JEL: C9 D12
    Date: 2013–01
  21. By: Bruno, Bruna; Fiorillo , Damiano
    Abstract: The paper studies the effect of voluntary work on labour income for Italian employees. The Heckman and Instrumental Variables methods are used in order to control for self-selection bias of participation in labour market and endogeneity of volunteering. The results show that a wage premium of 3 - 4 percent of annual income emerges, when selection and endogeneity problems are taken into account
    Keywords: Voluntary work; labour income; Heckman model; instrumental variables; Italy
    JEL: C36 J31 C31
    Date: 2013–01–25

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