nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2013‒07‒05
twelve papers chosen by
Tommaso Reggiani
University of Cologne

  1. When to Pay More: Incentives, Culture and Status in Principal‐ Agent Interactions By Dessi, Roberta; Miquel-Florensa, Pepita
  2. "Incentive Pay that Causes Inefficient Managerial Replacement" By Meg Sato
  3. Pay Growth, Fairness and Job Satisfaction : Implications for Nominal and Real Wage Rigidity By Smith, Jennifer C
  5. Off-Farm Work and Economic Performance on Corn Farms By Nehring, Richard; Mishra, Ashok; Fernandez-Cornejo, Jorge; Hallahan, Charlie; Erickson, Kenneth; Harris, Michael
  6. Why Firms Avoid Cutting Wages: Survey Evidence from European Firms By Du Caju, Philip; Kosma, Theodora; Lawless, Martina; Messina, Julián; Rõõm, Tairi
  7. Are you happy while you work? By Alex Bryson; George MacKerron
  8. The impact of investment in education on economic development: Spain in comparative perspective (1860-2000) By Enriqueta Camps
  9. Works council introductions: Do they reflect workers' voice? By Oberfichtner, Michael
  10. Emancipation Through Education By Michelle Rendall; Fatih Guvenen
  11. Liquidity and Inefficient Investment By Oliver D. Hart; Luigi Zingales
  12. Personal vs. Corporate Goals: Why do Insurance Companies Manage Loss Reserves? By Fiordelisi, Franco; Meles, Antonio; Monferrà, Stefano; Starita, Maria Grazia

  1. By: Dessi, Roberta (IDEI, Toulouse School of Economics); Miquel-Florensa, Pepita (Toulouse School of Economics)
    Abstract: We study the role of status in an experimental Principal-Agent game.Status is awarded to subjects based on either talent or luck. In each randomly matched principal-agent pair, the principal chooses the agent's status-contingent piece rate for a task in which talent matters for performance (an IQ test). We perform the experiment in Cambridge (UK) and in HCMV (Vietnam). We find that in Cambridge piece rate others are significantly higher for high-status agents (only) when status signals talent. However, these higher offers are not payoff-maximizing for the principals.In contrast, Vietnam piece rate offers are significantly higher for high-status agents (only) when status is determined by luck. We explore possible explanations, and the implications for status and incentives.
    Keywords: , , incentives, status, identity, piece rate, principal-agent, signaling, culture.
    Date: 2013–05
  2. By: Meg Sato (School of Economics, Finance and Marketing, Royal Melbourne Institute of Technology University)
    Abstract:    It is well known that granting incentive pay, such as stock-based compensation, to an agent mitigates the agency problem created by the unobservability of the agent’s e¤ort level. Using contract theory, this paper shows that stock options mitigate the moral hazard problem. However, they create another problem, namely, a misalignment of the interest between the principal and the …rm. Speci…cally, I consider an environment in which the principal can save her payments to the incumbent agent where the rational choice of the principal on whether to replace or retain the incumbent agent becomes an ine¢ cient decision from the perspective of total …rm value. The paper further examines both long- and short-term vested options may exhibit over-replacement of the incumbent agent, but only the short-term vested options may exhibit under-replacement, along the parametric range of control bene…t.
    Date: 2013–06
  3. By: Smith, Jennifer C (Department of Economics, University of Warwick)
    Abstract: Theories of wage rigidity often rely on a positive relationship between pay changes and utility, arising from concern for fairness or gift exchange. Supportive evidence has emerged from laboratory experiments, but the link has not yet been established with field data. This paper contributes a fist step, using representative British data. Workers care about the level and the growth of earnings. Below-median wage increases lead to an insult e¤ect except when similar workers have real wage reductions or fim production is falling. Nominal pay cuts appear insulting even when the firm is doing badly. JEL classification: Pay cuts ; Social comparisons ; Gift exchange JEL codes: J33 ; M52 ; J28 ; E24
  4. By: Ho Fai Chan; Benno Torgler
    Abstract: Nobel laureates have achieved the highest recognition in academia,reaching the boundaries of human knowledge and understanding. Owing to past research, we have a good understanding of the career patterns behind their performance. Yet, we have only limited understanding of the factors driving their recognition with respect to major institutionalized scientific honours. We therefore look at the award life cycle achievements of the 1901 to 2000 Nobel laureates in physics, chemistry and physiology or medicine. The results show that Nobelists with a theoretical orientation are achieving more awards than laureates with an empirical orientation. Moreover, it seems their educational background shapes their future recognition. Researchers educated in Great Britain and the US tend to generate more awards than other Nobelists although there are career pattern differences. Among those, laureates educated at Cambridge or Harvard are more successful in Chemistry, those from Columbia and Cambridge excel in Physics, while Columbia educated laureates dominate in Physiology or Medicine.
    Keywords: Nobel Prize, Nobel Laureates, Awards, Recognition, Educational Background, Theory, Empirics, Chemistry, Physics, Physiology or Medicine
    JEL: M52 J33 Z13
    Date: 2013–06–24
  5. By: Nehring, Richard; Mishra, Ashok; Fernandez-Cornejo, Jorge; Hallahan, Charlie; Erickson, Kenneth; Harris, Michael
    Abstract: This paper examines the effect of off-farm work on the economic performance of corn farms. It estimates returns to scale and technical efficiency following an input distance function approach and compares the relative performance of corn farm operator households with and without off-farm work. We use farm-level data from the USDA’s ARMS survey for 2002-2011. The impact of off-farm work on scale and technical efficiency is examined at the household level. We find that off-farm income boosts scale efficiency on corn farms. We also find that operator hours worked off farm negatively affects technical efficiency, while we find no impact on technical efficiency for spouse hours worked off farm. Finally, we find that corn farms relying on off farm income have comparable returns on farm assets across all size classes, but significantly higher household returns (with off-farm income and assets accounted for) across all size classes.
    Keywords: Consumer/Household Economics, Farm Management, Labor and Human Capital,
    Date: 2013–06
  6. By: Du Caju, Philip (National Bank of Belgium); Kosma, Theodora (Bank of Greece); Lawless, Martina (Central Bank of Ireland); Messina, Julián (World Bank and Universitat de Girona); Rõõm, Tairi (Eesti Pank)
    Abstract: The rarity with which firms reduce nominal wages has been frequently observed, even in the face of considerable negative economic shocks. This paper uses a unique survey of fourteen European countries to ask firms directly about the incidence of wage cuts and to assess the relevance of a range of potential reasons for why they avoid cutting wages. Concerns about the retention of productive staff and a lowering of morale and effort were reported as key reasons for downward wage rigidity across all countries and firm types. Restrictions created by collective bargaining were found to be an important consideration for firms in euro area countries but were one of the lowest ranked obstacles in non-euro area countries. The paper examines how firm characteristics and collective bargaining institutions affect the relevance of each of the common explanations put forward for the infrequency of wage cuts.
    Keywords: labour costs, wage rigidity, firm survey, wage cuts, European Union
    JEL: J30 J32 J33 J51 C81 P5
    Date: 2013–06
  7. By: Alex Bryson; George MacKerron
    Abstract: Happiness surveys typically ask people to say how they feel about their life experiences in retrospect, but smartphone technology makes it possible to collect responses on wellbeing 'in the moment'. The authors use this new 'Mappiness' data source to question whether we really are happy while we work.
    Keywords: happiness, relaxation, work, wellbeing
    JEL: I1 J0 J28
    Date: 2013–06
  8. By: Enriqueta Camps
    Abstract: Throughout the 19th century and until the mid-20th century, in terms of long-term investment in human capital and, above all, in education, Spain lagged far behind the international standards and, more specifically, the levels attained by its neighbours in Europe. In 1900, only 55% of the population could read; in 1950, the figure was 93%. This no doubt contributed to a pattern of slower economic growth in which the physical strength required for agricultural work, measured here through height, had a larger impact than education on economic growth. It was not until the 1970s, with the arrival of democracy, that the Spanish education system was modernized and the influence of education on economic growth increased.
    Keywords: employment structure, human capital, educational offer, economic growth.
    JEL: I2 I1 J3 J8 N3
    Date: 2013–06
  9. By: Oberfichtner, Michael
    Abstract: Using a large linked employer-employee dataset from Germany, the author investigates workers' decision to introduce a works council as an exit-voice consideration. Thereby, the author explores the collective voice face of introductions, while previous studies focus on the monopoly aspect. Controlling for unobserved plant heterogeneity, council introductions are more likely if workers have high plant-specific human capital or earn high wages, whereas no association between the labor market situation and introductions shows up. The findings on human capital and wages are consistent with the idea that workers trade off introducing a council against exit as well as with workers trying to protect an existing distribution of rents. Redoing the analysis for a sample of plants in which it is less relevant for workers to protect themselves against management decisions yields similar results supporting the voice interpretation. -- Mit einem umfangreichen kombinierten Betriebs-Beschäftigten-Datensatz für Deutschland betrachtet diese Arbeit die Entscheidung, einen Betriebsrat zu gründen, als ein Abwägen von Exit und Voice. Damit untersucht sie mögliche Voiceaspekte von Betriebsratsgründungen, während sich frühere Arbeiten auf Monopolaspekte konzentrieren. Bei Berücksichtigung unbeobachteter Heterogenität sind Betriebsratsgründungen wahrscheinlicher, wenn die Beschäftigten über hohes betriebsspezifisches Humankapital verfügen oder das Lohnniveau im Betrieb hoch ist. Es zeigt sich jedoch kein Zusammenhang mit der Arbeitsmarktsituation. Die Ergebnisse zu Löhnen und Humankapital sind sowohl mit einem Abwägen von Exit und Voice vereinbar als auch mit dem Versuch der Beschäftigten, eine bestehende Verteilung von Renten abzusichern. Bei einer getrennten Analyse für Betriebe, in denen es für Beschäftigte weniger relevant ist, sich gegen Entscheidungen der Unternehmensführung zu schützen, werden ähnliche Ergebnisse gefunden, was die Voiceinterpretation stützt.
    Keywords: co-determination,works councils,works council introductions,workers' voice
    JEL: J53
    Date: 2013
  10. By: Michelle Rendall (University of Zurich); Fatih Guvenen (University of Minnesota)
    Abstract: This paper investigates the role of education in the evolution of women's role in the society---specifically, in the labor market and in the marriage market. In particular, it attempts to understand a set of socio-economic trends since the 1950s, such as (i) the falling marriage rate and the rising divorce rate, (ii) the rising educational attainment of women, which now exceeds that of men's (iii) the rising average earnings of women relative to men (i.e., the gender wage gap), and (iv) the substantial rise in the labor force participation (and labor supply) of married women. These trends have potentially profound effects on the society and raise several interesting questions to study. We build a plausible model with education, marriage/divorce, and labor supply decisions in which these different trends are intimately related to each other. We focus on education because divorce laws typically allow spouses to keep a much larger fraction of the returns from their human capital upon divorce compared to their physical assets, making education a good insurance against divorce risk. The proposed framework generates a number of powerful amplification mechanisms, which lead to large rises in divorce rates and college enrollment of women and a fall in marriage rates from relatively modest exogenous driving forces.
    Date: 2012
  11. By: Oliver D. Hart; Luigi Zingales
    Abstract: We study the role of fiscal policy in a complete markets model where the only friction is the nonpledgeability of human capital. We show that the competitive equilibrium is constrained inefficient, leading to too little risky investment. We also show that fiscal policy following a large negative shock can increase ex ante welfare. Finally, we show that if the government cannot commit to the promised level of fiscal intervention, the ex post optimal fiscal policy will be too small from an ex ante perspective.
    JEL: E41 E51 G21
    Date: 2013–06
  12. By: Fiordelisi, Franco; Meles, Antonio; Monferrà, Stefano; Starita, Maria Grazia
    Abstract: This study analyses the determining factors of reserve errors in publicly listed property and casualty insurance companies in the U.S. This subject deserves special attention because the previous literature does not control for trade-offs between executive remuneration and other incentives regarding such insurers’ discretionary accounting choices. We find that insurance managers manipulate loss reserves to increase their stock-based remuneration and to achieve corporate goals particularly those goals that relate to reducing tax burdens and obscuring financial weakness. We also observe that enactment of the Sarbanes-Oxley Act has constrained the loss reserve underestimation and changed the structure of reserve error incentives.
    Keywords: P&C insurers; reserve manipulation; executive compensation
    JEL: G22 G32 M42
    Date: 2013–06–24

This nep-hrm issue is ©2013 by Tommaso Reggiani. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.