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

  1. International migration, human capital formation, and saving By Stark, Oded; Dorn, Agnieszka
  2. The behavioralist goes to school: Leveraging behavioral economics to improve educational performance By Steven Levitt; John List; Susanne Neckermann; Sally Sadoff
  3. The Impact on Earnings when Entering Self-Employment: Evidence for Germany By Johannes Martin
  4. Career Progression, Economic Downturns, and Skills By Jerome Adda; Christian Dustmann; Costas Meghir; Jean-Marc Robin
  5. CEO Incentive Contracts in China: Why Does City Location Matter? By Alex Bryson; John Forth; Minghai Zhou
  6. Post schooling human capital investments and the life cycle variance of earnings By Magnac, Thierry; Pistolesi, Nicolas; Roux, Sébastien
  7. Information and Quality when Motivation is Intrinsic: Evidence from Surgeon Report Cards By Jonathan T. Kolstad
  8. Trade, Education, and The Shrinking Middle Class By Emily Blanchard; Gerald Willmann
  9. Balanced Skills and the City: An Analysis of the Relationship between Entrepreneurial Skill Balance, Thickness and Innovation By Elisabeth Bublitz; Michael Fritsch; Michael Wyrwich
  10. The Real Income Shares of Labor, Human and Physical Capital: Determination Method and First Results for Germany By Peter E.J. Steffen
  11. Why agents need discretion: The business judgment rule as optimal standard of care By Engert, Andreas; Goldlücke, Susanne
  12. Back to the 'normal' level of human-capital driven growth? A note on early numeracy in Korea, China and Japan, 1550 - 1800 By Baten, Joerg; Sohn, Kitae
  13. Risk Tolerance and Entrepreneurship By Hvide, Hans K.; Panos, Georgios A.
  14. The performance of authority in organizations: an example from management consulting By Alaric Bourgoin; Nicolas Bencherki
  15. Cumulative Causation at Work: Intergenerational Transfers and Social Capital in a Spatially Varied Economy By A. Gentili; L. Ferretti
  16. Entrepreneurship and Creative Professions: A Micro-Level Analysis By Michael Fritsch; Alina Sorgner
  17. Workplace Heterogeneity and the Rise of West German Wage Inequality By Card, David; Heining, Jörg; Kline, Patrick
  18. Salaries and Work Effort: An Analysis of the European Union Parliamentarians By Naci Mocan; Duha T. Altindag
  19. Public education, technological change and economic prosperity By Klaus Prettner
  20. Ageing and Productivity: Introduction By Bloom, David E.; Sousa-Poza, Alfonso
  21. When the Cat is Near, the Mice Won't Play: The Effect of External Examiners in Italian Schools By Marco Bertoni; Giorgio Brunello; Lorenzo Rocco
  22. Researcher's Dilemma By Bobtcheff, Catherine; Bolte, Jérôme; Mariotti, Thomas
  23. The Economic and Demographic Transition, Mortality, and Comparative Development By Cervellati, Matteo; Sunde, Uwe

  1. 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, Community/Rural/Urban Development, Consumer/Household Economics, Institutional and Behavioral Economics, Labor and Human Capital, D91, F22, J22, J24,
    Date: 2013–01
  2. By: Steven Levitt; John List; Susanne Neckermann; Sally Sadoff
    Abstract: Research on behavioral economics has established the importance of factors such as 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 under-investment. 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.
    Date: 2013
  3. By: Johannes Martin
    Abstract: Using data of the German Socio-Economic Panel (GSOEP) earnings differentials between self-employed and wage-employed workers in the German labor market are explored. Previous research based on US data reports lower incomes for entrepreneurs. In contrast to that, the findings of this contribution suggest the opposite for German entrepreneurs. They have considerably higher earnings than wage-employed workers. Furthermore, there is a significant and positive effect on earnings when entering self-employment. This holds true when it is also taken into account that workers usually report a smaller firm size and work longer after beginning an entrepreneurial occupation.
    Keywords: Self-employment, Human Capital, Earnings, GSOEP, Entrepreneurship
    JEL: L26 J31 J32
    Date: 2013
  4. By: Jerome Adda (European University Institute); Christian Dustmann (University College London); Costas Meghir (Cowles Foundation, Yale University); Jean-Marc Robin (Sciences Po, Paris and University College London)
    Abstract: This paper analyzes the career progression of skilled and unskilled workers, with a focus on how careers are affected by economic downturns and whether formal skills, acquired early on, can shield workers from the effect of recessions. Using detailed administrative data for Germany for numerous birth cohorts across different regions, we follow workers from labor market entry onwards and estimate a dynamic life-cycle model of vocational training choice, labor supply, and wage progression. Most particularly, our model allows for labor market frictions that vary by skill group and over the business cycle. We find that sources of wage growth differ: learning-by-doing is an important component for unskilled workers early on in their careers, while job mobility is important for workers who acquire skills in an apprenticeship scheme before labor market entry. Likewise, economic downturns affect skill groups through very different channels: unskilled workers lose out from a decline in productivity and human capital, whereas skilled individuals suffer mainly from a lack of mobility.
    Keywords: Wage determination, Skills, Business cycles, Apprenticeship Training, Job Mobility, Human Capital
    JEL: J24 J31 J62 J63 I24
    Date: 2013–02
  5. By: Alex Bryson; John Forth; Minghai Zhou
    Abstract: CEO incentive contracts are commonplace in China but their incidence varies significantly across Chinese cities. We show that city and provincial policy experiments help explain this variance. We examine the role of two policy experiments: the use of Special Economic Zones (SEZs) to attract foreign direct investment (FDI), and the rate at which state owned enterprises (SOEs) were privatised. CEO incentive contracts are negatively correlated with foreign ownership and with the introduction of FDI via SEZs. However, the SEZ effect disappears having accounted for the city-level composition of firms and executives. Rapid SOE privatisation is associated with higher city and firm-level adoption of CEO incentive contracts, irrespective of the firm's own current ownership status. The positive effect of privatisation is robust to various estimation techniques and model specifications.
    Keywords: Executive compensation, CEOs, privatisation, FDI, China, cities
    JEL: G34 J31 J33 M12 M52 O16 P31
    Date: 2013–02
  6. By: Magnac, Thierry (TSE); Pistolesi, Nicolas (TSE); Roux, Sébastien (CREST INSEE, Paris)
    Abstract: We propose an original model of human capital investments after leaving school in which individuals di¤er in their initial human capital obtained at school, their rate of return, their costs of human capital investments and their terminal values of human capital at a fixed date in the future. We derive a tractable reduced form Mincerian model of log earnings profiles along the life cycle which is written as a linear factor model in which levels, growth and curvature of earnings profiles are individual-specific. Using panel data from a single cohort of French male wage earners observed over a long span of 30 years, a random effect model is estimated first by pseudo maximum likelihood methods. This step is followed by a simple second step fixed e¤ect method by which individual-specific structural parameters are estimated. This allows us to test restrictions, compute counterfactual profiles and evaluate how earnings inequality over the life-cycle is a¤ected by changes in structural parameters. Under some conditions, even small changes in life expectancy seem to imply large changes in earnings inequality.
    Keywords: human capital investment, earnings dynamics, post-schooling earnings growth, dynamic panel data
    JEL: C33 D91 J24 J31
    Date: 2013–01
  7. By: Jonathan T. Kolstad
    Abstract: If profit maximization is the objective of a firm, new information about quality should affect firm behavior only through its effects on market demand. I consider an alternate model in which suppliers are motivated by a desire to perform well in addition to profit. The introduction of quality “report cards” for cardiac surgery in Pennsylvania provides an empirical setting to isolate the relative role of extrinsic and intrinsic incentives in determining surgeon response. Information on performance that was new to surgeons and unrelated to patient demand led to an intrinsic response four times larger than surgeon response to profit incentives.
    JEL: I10 I11 I18 L15
    Date: 2013–02
  8. By: Emily Blanchard; Gerald Willmann
    Abstract: We develop a new model of trade in which educational institutions drive comparative advantage and determine the distribution of human capital within and across countries. Our framework exploits a multiplicity of sectors and the continuous support of human capital choices to demonstrate that freer trade can induce crowding out of the middle occupations towards the skill acquisition extremes in one country, and simultaneous expansion of middle-income industries in another. Individual gains from trade may be non-monotonic in workers' ability, and middle ability agents can lose the most from trade liberalization. Comparing trade and education policy, we find that targeted education subsidies are more effective than tariffs as a means to preserve "middle class" jobs, while uniform educational subsidies have no effect
    Keywords: Trade and Education Policy, Skill Acquisition, Education, Income Distribution
    JEL: F11 F13 F15 F16
    Date: 2013–02
  9. By: Elisabeth Bublitz (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Michael Wyrwich (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: Being a "jack-of-all-trades" increases the probability of running an entrepreneurial venture successfully; but what happens to "jack-of-few-trades" who lack sufficient skills? This paper investigates a possible compensation mechanism between balanced skills and cities, and how this compensatory measure relates to performance. Specifically, we test and find support for the idea put forward by Helsley and Strange (2011) that high market thickness, such as that found in cities, can compensate for a lack of entrepreneurial skill balance. The results indicate that entrepreneurs with low skill balance benefit more from locating in cities than their counterparts with high skill balance. Innovative firms do not differ from other businesses in this respect.
    Keywords: Agglomeration, Entrepreneurship, Balanced Skills, Thick Markets, Urban Diversity
    JEL: R1 L26 J24 O31
    Date: 2013–02–26
  10. By: Peter E.J. Steffen (Universität Hamburg (University of Hamburg))
    Abstract: A method is presented that allows to separate the total labor income into parts of basic labor and human capital using annual micro data. As results yearly total income shares of physical and human capital and labor are obtained for a single country. The method is applied to Germany using micro data of the years 1976, 1985, 1995, and 2006. The obtained average income shares are in agreement with the well known results of Mankiw, Romer and Weil [8] if only employed workers are considered. If self-employed labor is also taken into account, the share ratios of physical and human capital and labor change to sK : sH : sL = 0:18 : 0:26 : 0:55. This result diers considerably from the generally expected share ratios for developed countries of 1/3 : 1/3 : 1/3. Further on, the development of the German income shares are investigated. The observed variation is in contradiction to a constant behavior as expected from Kaldor's stylized facts. The source could be traced to considerable changes in the qualication structure of the German work force.
    Keywords: human capital, Mikrozensus, annual factor income shares, factor share development
    JEL: D33 E25 J24
    Date: 2013–02
  11. By: Engert, Andreas; Goldlücke, Susanne
    Abstract: Should managers be liable for ill-conceived business decisions? One answer is given by U.S. courts, which almost never hold managers liable for their mistakes. In this paper, we address the question in a theoretical model of delegated decision making. We find that courts should indeed be lenient as long as contracts are restricted to be linear. With more general compensation schemes, the answer depends on the precision of the court’s signal. If courts make many mistakes in evaluating decisions, they should not impose liability for poor business judgment.
    Keywords: business judgment rule , manager liability , delegated decision-making
    JEL: K13 K22 M53
    Date: 2013
  12. By: Baten, Joerg; Sohn, Kitae
    Abstract: This paper draws on a unique data set, hojok (household registers), to estimate numeracy levels in Korea, 1550-1630, and evidence on Japan and China from the early modern period until 1800. We found that a substantial share of East Asians rounded their ages to multiples of five. However, the extent of age-heaping was quite low by global standards, even considering the potential sources of upward bias inherent in the data. Therefore, the unusually high level of numeracy in East Asia in the early 21st century was already present in the early modern period. The findings imply that in the Korean case, for example, the foundations of the human-capital based catch-up growth were laid very early. More broadly, we argue that Korea, Japan, and China returned to the growth-path at different points of the 20th century, and this return was pre-determined by their early numeracy development. --
    Keywords: Human-Capital,Development,Growth,Numeracy
    JEL: O15 O40 I21 N35 N30
    Date: 2013
  13. By: Hvide, Hans K. (University of Bergen); Panos, Georgios A. (University of Stirling)
    Abstract: A tradition from Knight (1921) argues that more risk tolerant individuals are more likely to become entrepreneurs, but perform worse. We test these predictions with two risk tolerance proxies: stock market participation and personal leverage. Using investment data for 400,000 individuals, we find that common stock investors are around 50 percent more likely to subsequently start up a firm. Firms started up by stock market investors have about 25 percent lower sales and 15 percent lower return on assets. The results are similar using personal leverage as risk tolerance proxy. We consider alternative explanations including unobserved wealth and behavioral effects.
    Keywords: entrepreneurial entry, entrepreneurial performance, firm entry, firm performance, firm productivity, firm survival, overconfidence, risk aversion, risk tolerance, stock market participation
    JEL: L26
    Date: 2013–02
  14. By: Alaric Bourgoin (Centre de Sociologie de l'Innovation, Mines ParisTech); Nicolas Bencherki (Polytechnic Institute of New York University)
    Abstract: Sketches a pragmatist model of authority by studying the case of a consultant faced with the issue of establishing his authority in the actual context of a consulting assignment, and showing how the consultant invokes various “figures” that lend weight to his actions.
    Keywords: authority; boundaries; consultancy; ethnography; client relationship
    JEL: M14 M42
    Date: 2013–01
  15. By: A. Gentili; L. Ferretti
    Abstract: This paper models the dynamic of migration with a particular focus on the cumulative process that causes a variation in the distribution of income in sending communities and therefore a variation in the distribution of skills across different cohorts. The model provides a theoretical framework to Cumulative Causation theory of migration and specifically a theoretical rationale behind the use of migration prevalence ratio to study migration flows. Moreover the model shows how brain drain (in sending communities) and negative cohort effect in terms of education (in receiving communities) are the result of a positive selection of migrants in terms of skills if there is a intergenerational transmission of education.
    JEL: J15 J24 E24
    Date: 2013–02
  16. By: Michael Fritsch; Alina Sorgner
    Abstract: It has widely been recognized that creativity plays an immense role not only for arts, sciences, and technology, but also for entrepreneurship, innovation, and thus, economic growth. We analyze the level and the determinants of self-employment in creative professions at the level of individuals. The analysis is based on the representative micro data of the German Socio-Economic Panel (SOEP). The findings suggest that people in creative professions appear more likely to be self-employed and that a high regional share of people in the creative class increases an individual’s likelihood of being an entrepreneur. Investigating the determinants of entrepreneurship within the creative class as compared to non-creative professions reveals only some few differences.
    Keywords: Entrepreneurship, new business formation, creativity, creative class
    JEL: L26 Z1 D03
    Date: 2013
  17. By: Card, David (University of California, Berkeley); Heining, Jörg (Institute for Employment Research (IAB), Nuremberg); Kline, Patrick (University of California, Berkeley)
    Abstract: We study the role of establishment-specific wage premiums in generating recent increases in West German wage inequality. Models with additive fixed effects for workers and establishments are fit in four sub-intervals spanning the period from 1985 to 2009. We show that these models provide a good approximation to the wage structure and can explain nearly all of the dramatic rise in West German wage inequality. Our estimates suggest that the increasing dispersion of West German wages has arisen from a combination of rising heterogeneity between workers, rising dispersion in the wage premiums at different establishments, and increasing assortativeness in the assignment of workers to plants. In contrast, the idiosyncratic job-match component of wage variation is small and stable over time. Decomposing changes in mean wages between different education groups, occupations, and industries, we find that increasing plant-level heterogeneity and rising assortativeness in the assignment of workers to establishments explain a large share of the rise in inequality along all three dimensions.
    Keywords: wage inequality, assortative matching
    JEL: J00 J31 J40
    Date: 2013–02
  18. By: Naci Mocan; Duha T. Altindag
    Abstract: Prior to July 2009, salaries of the members of the European Parliament were paid by their home country and there were substantial salary differences between parliamentarians representing different EU countries. Starting in July 2009, the salary of each member of the Parliament is pegged to 38.5% of a European Court judge’s salary, paid by the EU. This created an exogenous change in salaries, the magnitude and direction of which varied substantially between parliamentarians. Parliamentarians receive per diem compensation for each meeting day attended during plenary sessions, but salaries constitute fixed income as they are independent of attendance to the Parliament. Using detailed information on each parliamentarian of the European Parliament between 2004 and 2011 we show that an increase in salaries reduces attendance to plenary sessions. An increase in salaries has also a negative impact on questions asked by parliamentarians in plenary sessions but it has no impact on other job-related activities.
    Date: 2013–02
  19. By: Klaus Prettner
    Abstract: We introduce publicly funded education in R&D-based economic growth theory. The framework allows us to i) incorporate a realistic process of human capital accumulation for industrialized countries, ii) reconcile R&D-based growth theory with the empirical evidence on the relationship between economic prosperity and population growth, iii) revise the policy invariance result of semi-endogenous growth frameworks, and iv) show that the transitional effects of an education reform tend to be qualitatively different from its long-run impact.
    Keywords: human capital accumulation; technological progress; scale-free economic growth; public education policy
    JEL: I25 J24 O11 O31 O41
    Date: 2013–01–14
  20. By: Bloom, David E. (Harvard University); Sousa-Poza, Alfonso (University of Hohenheim)
    Abstract: Population ageing will be the dominant feature of the world's demographic landscape in the coming decades, raising concerns about labor productivity and about economic outcomes at both the individual, enterprise, and macro levels. The articles in this special issue of Labour Economics define and address key issues with respect to the interplay of ageing, workforce productivity, and economic performance. Taken as a whole, the articles dispel some of the concerns, sharpen our understanding of others, and highlight behavioural changes, business practice adaptations, and public policy reforms that can offset the economic effects of population ageing.
    Keywords: ageing, productivity
    JEL: J11 J14 J18
    Date: 2013–02
  21. By: Marco Bertoni; Giorgio Brunello; Lorenzo Rocco
    Abstract: We use a natural experiment to show that the presence of an external examiner has both a direct and an indirect negative effect on the performance of monitored classes in standardized educational tests. The direct effect is the difference in the test performance between classes of the same school with and without external examiners. The indirect effect is the difference in performance between un-monitored classes in schools with an external examiner and un-monitored classes in schools without external monitoring. We find that the overall effect of having an external examiner in the class is to reduce the proportion of correct answers by 5.5 to 8.5% - depending on the grade and the test - with respect to classes in schools with no external monitor. The direct and indirect effects range between 4.3 and 6.6% and between 1.2 and 1.9% respectively. Using additional supporting evidence, we argue that the negative impact of the presence of an external examiner on measured test scores is due to reduced cheating (by students and/or teachers) rather than to the negative effects of anxiety or distraction from having a stranger in the class.
    Keywords: Education, testing, external monitoring, indirect treatment effects
    JEL: C31 H52 I2
    Date: 2013–02
  22. By: Bobtcheff, Catherine (Toulouse School of Economics (CNRS, LERNA)); Bolte, Jérôme (Toulouse School of Economics (GREMAQ)); Mariotti, Thomas (Toulouse School of Economics (CNRS, GREMAQ, IDEI))
    Abstract: We model academic competition as a game in which researchers ¯ght for priority. Researchers privately experience breakthroughs and decide how long to let their ideas mature before making them public, thereby establishing priority. In a two-researcher, symmetric environment, the resulting preemption game has a unique equilibrium. We study how the shape of the breakthrough distribution affects equilibrium maturation delays. Making researchers better at discovering new ideas or at developing them has contrasted effects on the quality of research outputs. Finally, when researchers have different innovative abilities, speed of discovery and maturation of ideas are positively correlated in equilibrium.
    Keywords: Academic Competition, Preemption Games, Private Information.
    JEL: C73 D82
    Date: 2013–02
  23. By: Cervellati, Matteo (University of Bologna); Sunde, Uwe (University of Munich)
    Abstract: We propose a unified growth theory to investigate the mechanics generating the economic and demographic transition, and the role of mortality differences for comparative development. The framework can replicate the quantitative patterns in historical time series data and in contemporaneous cross-country panel data, including the bi-modal distribution of the endogenous variables across countries. The results suggest that differences in extrinsic mortality might explain a substantial part of the observed differences in the timing of the take-off across countries and the worldwide density distribution of the main variables of interest.
    Keywords: economic and demographic transition, adult mortality, child mortality, quantitative analysis, unified growth model, heterogeneous human capital, comparative development, development traps
    JEL: E10 J10 J13 N30 O10 O40
    Date: 2013–02

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