nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2013‒10‒18
twenty-two papers chosen by
Tommaso Reggiani
University of Cologne

  1. Ambiguity in Performance Pay: An Online Experiment By David Johnson; David Cooper
  2. Bonus Pools and the Informativeness Principle By Imhof, Lorens; Kräkel, Matthias
  3. Why Real Leisure Really Matters: Incentive Effects on Real Effort in the Laboratory. By Brice Corgnet; Roberto Hernán-González; Eric Schniter
  4. Authority and Incentives in Organizations By Kräkel, Matthias
  5. Tournaments with Gaps By Imhof, Lorens; Kräkel, Matthias
  6. Merger Efficiency and Managerial Incentives By Kräkel, Matthias; Müller, Daniel
  7. Competencies: requirements and acquisition By Meng C.M.; Peters Z.; Verhagen A.M.C.; Künn-Nelen A.C.
  8. Intrinsically Motivated Agents: Blessing or Curse for Firms? By Ester Manna
  9. What is expected of higher education graduates in the 21st century? By Humburg M.; Velden R.K.W. van der
  10. Limited Managerial Attention and Corporate Aging By Loderer, Claudio F.; Stulz, Rene M.; Waelchli, Urs
  11. Workers' propensity to cooperate with colleagues and the general population: a comparison based on a field experiment By Giacomo Degli Antoni
  12. Externalities in Recruiting By Kräkel, Matthias; Szech, Nora; von Bieberstein, Frauke
  13. Optimal Contracting with Altruism and Reciprocity By Matteo Bassi; Marco Pagnozzi; Salvatore Piccolo
  14. A Theory of Threshold Contracts By Johannes Gerd Becker; Hans Gersbach
  15. How Does Temporary Agency Work Impact German Agency Workers? By Spermann, Alexander
  16. The long-run and intergenerational education impacts of intergovernmental transfers By Irineu de Carvalho Filho; Stephan Litschig
  17. Digitization and the Contract Labor Market: A Research Agenda By Ajay Agrawal; John Horton; Nicola Lacetera; Elizabeth Lyons
  18. Occupational Complexity, Experience, and the Gender Wage Gap By Elisa Keller
  19. Selection and tracking in secondary education; A cross country analysis of student performance and educational opportunities By Korthals R.A.
  20. Understanding Severance Pay By Parsons, Donald O.
  21. Heterogeneous sports participation and labour market outcomes in England By Lechner, Michael; Downward, Paul
  22. Merit aid, student mobility, and the role of college selectivity By Rajashri Chakrabarti; Joydeep Roy

  1. By: David Johnson (University of Calgary); David Cooper
    Abstract: Many incentive plans are inherently ambiguous, lacking an explicit mapping between performance and compensation. Using an online labor market, Amazon Mechanical Turk, we study the effect of ambiguity on willingness to accept contracts to do a real-effort task as well as completion and performance of this task. Ambiguity about the relationship between performance and compensation affects the willingness of individuals to accept contracts and the likelihood of quitting before completion, but not performance. These effects are non-monotonic in the level of ambiguity. Information about ability at the task reduces willingness to accept and increases quitting, but does not affect performance.
    Keywords: ambiguity, incentives, performance pay, quitting, online experiment
    JEL: C99 D81 J33
    Date: 2013–10–12
  2. By: Imhof, Lorens; Kräkel, Matthias
    Abstract: Previous work on moral-hazard problems has shown that, under certain conditions, bonus contracts create optimal individual incentives for risk-neutral workers. In our paper we demonstrate that, if a firm employs at least two workers, it may further bene.t from combining worker compensation via a bonus-pool contract and relative performance evaluation. Such combination leads to saved rents under a wide class of luck distributions. In addition, if the employer is wealth-constrained, complementing individual bonus contracts by the possibility of pooling bonuses can increase the set of implementable effort levels. All our results hold even though workers’ outputs are technically and stochastically independent so that, in view of Holmstrom’s informativeness principle, individual bonus contracts would be expected to dominate bonus-pool contracts.
    Keywords: contract; hazard rate; informativeness principle; limited liability; relative performance.
    JEL: C72 D86
    Date: 2013
  3. By: Brice Corgnet (Argyros School of Business and Economics, Chapman University); Roberto Hernán-González (Universidad de Granada); Eric Schniter (Economic Science Institute, Chapman University)
    Abstract: On-the-job leisure is a pervasive feature of the modern workplace. We studied its impact on work performance in a laboratory experiment by either allowing or restricting Internet access. We used a 2×2 experimental design in which subjects completing real-effort work tasks could earn cash according to either individual- or team-production incentive schemes. Under team pay, production levels were significantly lower when Internet browsing was available than when it was not. Under individual pay, however, no differences in production levels were observed between the treatment in which Internet was available and the treatment in which it was not. In line with standard incentive theory, individual pay outperformed team pay across all periods of the experiment when Internet browsing was available. This was not the case, however, when Internet browsing was unavailable. These results demonstrate that the integration of on-the-job leisure activities into an experimental labor design is crucial for uncovering incentive effects.
    Keywords: Incentive, Free riding, Internet access, Experimental method
    JEL: C92 D23 M52
    Date: 2013
  4. By: Kräkel, Matthias
    Abstract: The paper analyzes the choice of organizational structure as solution to the trade-off between controlling behavior based on authority rights and minimizing costs for implementing high efforts. The analysis includes the owner of a firm, a top manager and two division heads. If it is more expensive to incentivize the division heads, the owner will prefer full delegation of authority to them to replace their high incentive pay by incentives based on private benefits of control. In that situation, decentralization is optimal given that selfish behavior is more important than cooperation for maximizing returns, but concentrated delegation of full authority to a single division head is optimal for cooperation being crucial. If, however, incentivizing the division heads is clearly less expensive than creating incentives for the top manager, the owner will choose centralization given that cooperation is the dominating issue, but partial delegation if selfish behavior is crucial.
    Keywords: authority; centralization; contracts; decentralization; moral hazard.
    JEL: D21 D23 D86 L22
    Date: 2013
  5. By: Imhof, Lorens; Kräkel, Matthias
    Abstract: A standard tournament contract specifies only tournament prizes. If agents’ performance is measured on a cardinal scale, the principal can complement the tournament contract by a gap which defines the minimum distance by which the best performing agent must beat the second best to receive the winner prize. We analyze a tournament with two risk averse agents. Under unlimited liability, the principal strictly benefits from a gap by partially insuring the agents and thereby reducing labor costs. If the agents are protected by limited liability, the principal sticks to the standard tournament.
    Keywords: limited liability; moral hazard; risk aversion; tournament; unlimited liability
    JEL: C72 D86
    Date: 2013
  6. By: Kräkel, Matthias; Müller, Daniel
    Abstract: We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low synergies—even when targets with high synergies are available—to obtain high-powered incentives and, hence, a high personal income at the merger-management stage. We derive conditions under which shareholders prefer a self-commitment policy or a rent-reduction policy to deter the CEO from opportunistic recommendations.
    Keywords: acquisition; merger; moral hazard
    JEL: D82 D86 G34
    Date: 2013–06–02
  7. By: Meng C.M.; Peters Z.; Verhagen A.M.C.; Künn-Nelen A.C. (ROA)
    Abstract: Higher education is given the key task to prepare the highly talented among the young to fulfil highly qualified roles in the labour market. Successful labour market performance of graduates is generally associated with the acquisition of the correct competencies. Education as an individual investment in human capital is a viewpoint dating back to the 17th century and the writings of Sir William Petty 1662, and includes later work by Adam Smith 1776. The idea was formalized and brought into mainstream economics by Schultz 1961, Becker 1964 and Mincer 1970, 1974. The strong supply-side orientation of the human capital theorys determination of labour productivity has also raised serious doubts. One of the first major competitors of the human capital theory was the job competition model Thurow, 1975, in its most extreme form explaining productivity entirely by occupational characteristics. Both the human capital theory and the job competition model in their original versions seem to be too restricted to one side of the labour market. More recently, therefore, approaches that allow explicitly for an interaction between supply-side and demand-side characteristics assignment models have been placed centrally in analyses of education-to-work stages. For a good overview of different assignment models and their distinctive features with respect to matching models, such as proposed by Mortensen 1986, or search theories e.g. Jovanovic, 1979, see Dupuy 2004.
    Date: 2013
  8. By: Ester Manna
    Abstract: I investigate whether the presence of intrinsically motivated agents benefits firms in a competitive environment. I find that firms may obtain higher profits by hiring self-interested agents than by hiring motivated agents. This is because the agents' intrinsic motivation has counteracting effects on the profits obtained by the firms. On the one hand, motivation has a positive impact on the profits due to a reduction of wages. Motivated employees provide a given level of quality for a lower wage. On the other hand, motivation has a negative impact on each firm's profits. The agents' intrinsic motivation has a positive impact on the quality offered by the firms. With higher quality, the degree of differentiation of the products is relatively less important, increasing competition and reducing prices. Firms find themselves trapped in a prisoner's dilemma in which the strategy of hiring self-interested agents is strictly dominated by that of hiring motivated agents. Hence, the very presence of motivated agents may hurt firms.
    JEL: D03 D21 L13
    Date: 2013–10–08
  9. By: Humburg M.; Velden R.K.W. van der (GSBE)
    Abstract: In this paper, we reflect on the skills higher education graduates are expected to have in todays economy and the role of higher education in equiping graduates with these skills. First, we identify 6 trends which form the basis of the changing role of graduates in economic life. These trends are the knowledge society, increasing uncertainty, the ICT revolution, high performance workplaces, globalization, and the change of the economic structure. By changing the nature and range of tasks graduates are expected to fulfil in todays economy, we argue that these trends generate new and intensify traditional skill demands, which we summarize as professional expertise, flexibility, innovation and knowledge management, mobilization of human resources, international orientation, and entrepreneurship. Second, we draw out some key issues concerning the role of higher education institutions in equiping graduates with these skills.
    Keywords: Analysis of Education; Education and Economic Development; Education: Government Policy; Human Capital; Skills; Occupational Choice; Labor Productivity;
    JEL: I21 I25 I28 J24
    Date: 2013
  10. By: Loderer, Claudio F. (Institute for Financial Management, University of Bern); Stulz, Rene M. (OH State University and ECGI, Brussels); Waelchli, Urs (Institute for FInancial Management, University of Bern)
    Abstract: As firms have more assets in place, more of management's limited attention is focused on managing assets in place rather than developing new growth options. Consequently, as firms grow older, they have fewer growth options and a lower ability to generate new growth options. This simple theory predicts that Tobin's q falls with age. Further, competition in the product market is expected to slow down the decrease in Tobin's q because it forces firms to look for alternative sources of rents. Similarly, greater competition in the labor market reduces the decrease in Tobin's q with age because old firms are in a better position to hire employees that can help with innovation. In contrast, competition in the market for corporate control should accelerate the decline because it forces management to focus more on managing assets in place whose performance is more directly observable than on developing growth options where results may not be observable for some time. We find strong support for these predictions in tests using exogenous variation in competition.
    JEL: G30 L20
    Date: 2013–09
  11. By: Giacomo Degli Antoni (University of Parma, Department of Law)
    Abstract: Experimental evidence shows that people tend to be more cooperative with persons belonging to their own group than with others. Strangely enough, this literature largely fails to consider a type of group pervasive in modern societies: colleagues belonging to the same productive organization. This is particularly curious if one considers the importance of cooperation among colleagues for the economic performance of organizations. This paper carries out an original experimental analysis which compares the level of cooperation of social cooperative workers when they are paired with colleagues and with people from the general population. In contrast with the literature on in-group favoritism, we find that workers trust their colleagues less and cooperate less with them than they do with people from the general public, even though, in absolute terms, the level of cooperation is quite high also among colleagues. By analyzing first- and second-order beliefs, we show that the difference in cooperation is partly mediated by expectations concerning the counterpart's behavior, since workers expect their colleagues to be less cooperative than members of the general public. However, the analysis reveals that also other motivations count, such as other-regarding preferences and warm glow.
    Keywords: social cooperatives, field experiment, social dilemmas, in-group favoritism, trust, beliefs
    JEL: C72 C93 L31 P13 Z13
    Date: 2013–10
  12. By: Kräkel, Matthias; Szech, Nora; von Bieberstein, Frauke
    Abstract: External recruiting at least weakly improves the quality of the pool of applicants, but the incentive implications are less clear. Using a contest model, this paper investigates the pure incentive effects of external recruiting. Our results show that if workers are heterogeneous, the opening of a firm’s career system may lead to a homogenization of the pool of contestants and, thus, encourage the firm’s high ability workers to exert more effort. If this positive effect outweighs the discouragement of low ability workers, the firm will benefit from external recruiting. If, however, the discouragement effect dominates the homogenization effect, the firm should disregard external recruiting. In addition, product market competition makes opening of the career system less attractive for a firm since it increases the incentives of its competitors’ workers and hence strengthens the competitors.
    Keywords: contest; externalities; recruiting; wage policy.
    JEL: C72 J2 J3
    Date: 2013
  13. By: Matteo Bassi (Università di Napoli Federico II and CSEF); Marco Pagnozzi (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università Cattolica delSacro Cuore di Milano and CSEF)
    Abstract: Motivated by the recent experimental evidence on altruistic behavior, we study a simple principal-agent model where each player cares about other players’ utility, and may reciprocate their attitude towards him. We show that, relative to the selfish benchmark, efficiency improves when players are altruistic. Nevertheless, in contrast to what may be expected, an increase in the degree of the agent’s altruism as well as a more reciprocal behavior by players has ambiguous effects on efficiency. We also consider the effects of the presence of spiteful players and discuss how monetary transfers between players depend on their degrees of altruism and spitefulness.
    Keywords: Adverse selection, altruism, reciprocity, optimal contracting
    JEL: D64 D86
    Date: 2013–10–10
  14. By: Johannes Gerd Becker (ZHAW, Switzerland); Hans Gersbach (ETH Zurich, Switzerland)
    Abstract: We consider an innitely repeated reappointment game in a principal- agent relationship. Typical examples are voter-politician or government- public servant relationships. The agent chooses costly effort and enjoys being in office until he is deselected. The principal observes a noisy signal of the agent's effort and decides whether to reappoint the agent or not. We analyse the stationary Markovian equilibria of this game and examine the consequences of threshold contracts, which forbid reappointment if the principal's utility is too low. We identify the circumstances under which such threshold contracts are welfare-improving or beneficial for the principal.
    Keywords: principal-agent model; repeated game; reappointment; stationary Markovian strategies; threshold strategies; threshold contracts, asymmetric information; commitment.
    JEL: C83 D82 D86 H11
    Date: 2013–10
  15. By: Spermann, Alexander (Randstad)
    Abstract: The enormous speed of change in the working world is associated with greater job insecurity. As a dynamic external flexibilization instrument, temporary agency work is characterized by high labor turnover rates. As a result, agency workers might perceive more job insecurity than permanent staff. This paper surveys German empirical studies on outcome variables such as job satisfaction, commitment, health, employability, social participation and effects on personal life for agency workers. It is enriched by practical experience gathered at Randstad, Germany’s leading staffing firm, and also provides a summary of recent research on job stability for agency workers.
    Keywords: temporary agency work, staffing industry, job satisfaction, commitment, employability
    JEL: I2 J2 J4
    Date: 2013–10
  16. By: Irineu de Carvalho Filho; Stephan Litschig
    Abstract: This paper provides regression discontinuity evidence on long-run and intergenerational education impacts of a temporary increase in federal transfers to local governments in Brazil. Revenues and expenditures of the communities benefiting from extra transfers temporarily increased by about 20% during the 4 year period from 1982 to the end of 1985. Schooling and literacy gains for directly exposed cohorts established in previous work that used the 1991 census are attenuated but persist in the 2000 and 2010 censuses. Children and adolescents of the next generation --born after the extra funding had disappeared-- show gains of about 0.08 standard deviation across the entire score distribution of two nationwide exams at the end of the 2000s. While we find no evidence of persistent improvements in school resources, we document discontinuities in education levels, literacy rates and incomes of test takers' parents that are consistent with intergenerational human capital spillovers.
    Keywords: intergovernmental grants, human capital, test scores, regression discontinuity
    JEL: H40 H72 I21 O15
    Date: 2013–09
  17. By: Ajay Agrawal; John Horton; Nicola Lacetera; Elizabeth Lyons
    Abstract: Online contract labor globalizes traditionally local labor markets, with platforms that enable employers, most of whom are in high-income countries, to more easily outsource tasks to contractors, primarily located in low-income countries. This market is growing rapidly; we provide descriptive statistics from one of the leading platforms where the number of hours worked increased 55% from 2011 to 2012, with the 2012 total wage bill just over $360 million. We outline three lines of inquiry in this market setting that are central to the broader digitization research agenda: 1) How will the digitization of this market influence the distribution of economic activity (geographic distribution of work, income distribution, distribution of work across firm boundaries)?; 2) What is the magnitude and nature of information frictions in these digital market settings as reflected by user responses to market design features (allocation of visibility, investments in human capital acquisition, machine-aided recommendations)?; 3) How will the digitization of this market affect social welfare (increased efficiency in matching, production?)? We draw upon economic theory as well as evidence from empirical research on online contract labor markets and other related settings to motivate and contextualize this research agenda.
    JEL: J24 J61 O15 O33
    Date: 2013–10
  18. By: Elisa Keller (University of Iowa)
    Abstract: I explore the role of individuals' skills and work experience in explaining the gender wage gap across occupations. I use the O*NET dataset to build an index of occupational complexity: the ratio of abstract to manual tasks. The ratio of female to male wages is U-shaped across occupations ordered by increasing complexity. The U-shape flattens over the lifecycle and across successive cohorts. I develop an occupational choice model with male and female individuals who are heterogeneous with respect to their level of skill. An individual's skill at a point in time depends on his/her exogenous initial level of skill and his/her work experience. Individuals decide how much time to spend in the labor market. Occupations differ by two features in my model: 1) the skill required to perform, and 2) the marginal product of skill. If occupations involve simple tasks, output and wages vary little across workers of different initial skill levels. Also, acquired work experience influences wages only slightly, since little can be learned by performing simple tasks. I discipline the model with data on occupational complexity, occupational choice, labor supply and male wages. The model reproduces the gender wage gap across occupations for cohorts born between 1915 and 1955. The little work experience of females relative to that of males is a key factor behind the U-shape. It decreases female wages disproportionately across occupations and it influences female occupational selection. I find that 69% of the lifecycle gender wage gap is attributable to work experience. Removing differences in work experience between genders results in a larger fraction of females choosing occupations for which the gender wage differential is smaller.
    Date: 2013
  19. By: Korthals R.A. (GSBE)
    Date: 2013
  20. By: Parsons, Donald O. (George Washington University)
    Abstract: Severance pay, a fixed-sum payment to workers at job separation, has been the focus of intense policy concern for the last several decades, but much of this concern is unearned. The design of the ideal separation package is outlined and severance pay emerges as a natural component of job displacement insurance packages, serving both as scheduled reemployment wage insurance and, if search moral hazard is a problem, as scheduled UI. Like any firm-financed separation expenditure, severance pay can induce excessive job retention, but such distortions do not appear to be of practical significance at benefit levels typically mandated in the industrialized world. Moreover there is no evidence that firms attempt to avoid these firing cost distortions by substituting severance savings plans, which have zero firing costs. Indeed severance insurance plans similar to those mandated are often offered voluntarily in the U.S. The appropriate role of government in the market for severance pay is briefly considered.
    Keywords: severance pay, job displacement, firing costs, unemployment insurance, moral hazard
    JEL: J65 J41 J33 J08
    Date: 2013–09
  21. By: Lechner, Michael; Downward, Paul
    Abstract: Based on a unique composite dataset measuring heterogeneous sports participation, labour market outcomes and local facilities provision, this paper examines for the first time the association between different types of sports participation on employment and earnings in England. Clear associations between labour market outcomes and sports participation are established through matching estimation whilst controlling for some important confounding factors. The results suggest a link between different types of sports participation to initial access to employment and then higher income opportunities with ageing. However, these vary between the genders and across sports. Specifically, the results suggest that team sports contribute most to employability, but that this varies by age across genders and that outdoor activities contribute most towards higher incomes.
    Keywords: Sports Participation, Human Capital, Labour Market, Matching Estimation
    JEL: I12 I18 J24 L83 C21
    Date: 2013–10
  22. By: Rajashri Chakrabarti; Joydeep Roy
    Abstract: In this paper, we investigate the role of college selectivity in mobility decisions (both in-state and out-of-state) of freshmen students following Georgia’s HOPE scholarship program. How did HOPE affect the selectivity of colleges attended by Georgia’s freshmen students? Did it induce Georgia’s freshmen students who would have otherwise attended more selective out-of-state colleges to instead attend less selective in-state ones? Or was there movement to more selective ones, both in-state and out-of-state? Using student residency and enrollment data from IPEDS and selectivity data from Barron’s and Peterson’s, we find that in the aftermath of HOPE, Georgia freshmen attended relatively more selective colleges overall. Disaggregating further, we find that Georgia freshmen attending in-state colleges attended more selective ones. Georgia freshmen attending out-of-state colleges were also more likely to attend more selective colleges, most likely due to an increase in the reservation price to go to out-of-state colleges following HOPE. Our results are robust to a variety of sensitivity checks and have important policy implications. In particular, Peltzman had observed in his classic 1973 paper that in-kind subsidies can induce individuals to invest in less quality-adjusted human capital than they might otherwise. The fact that Georgia freshmen attended relatively more selective colleges in the post-HOPE period allays, to some extent, the concern that state merit aid programs can adversely affect long-term outcomes and human capital formation.
    Keywords: Universities and colleges ; Subsidies ; Education - Economic aspects ; Human capital
    Date: 2013

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