nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2013‒11‒29
twenty papers chosen by
Tommaso Reggiani
University of Cologne

  1. CAN HIGHER REWARDS LEAD TO LESS EFFORT? INCENTIVE REVERSAL IN TEAMS By Esteban Klor; Sebastian Kube; Eyal Winter; Ro'i Zultan
  2. Testing the Theory of Multitasking: Evidence from a Natural Field Experiment in Chinese Factories By Fuhai Hong; Tanjim Hossain; John A. List; Migiwa Tanaka
  3. The importance of intrinsic and extrinsic motivation for measuring IQ By Borghans, Lex; Meijers, Huub; Weel, Bas ter
  4. Age and productivity. Human Capital Accumulation and Depreciation By Anna Ruzik-Sierdzinska; Claudia Villosio; Michele Belloni; Maciej Lis; Monika Potoczna
  5. Human capital, creative class and regional economic performance: A dynamic panel analysis By Esubalew Alehegn; Silvia Sacchetti; Ermanno Tortia
  6. Absence from work of the self-employed: A comparison with paid employees By Lechmann, Daniel S.; Schnabel, Claus
  7. Senior management labor market: from economic growth to crisis. The case of Russia By Sergey Solntsev
  8. The Risk and Return of Human Capital Investments By Koerselman, Kristian; Uusitalo, Roope
  9. Wage Comparisons in and out of the Firm. Evidence from a Matched Employer-Employee French Database By Olivier Godechot; Claudia Senik
  10. Does the Unemployment Benefit Institution affect the Productivity of Workers? Evidence from a Field Experiment By Blanco, Mariana; Dalton, Patricio S.; Vargas, Juan F.
  11. Explaining Educational Attainment across Countries and over Time By Diego Restuccia; Guillaume Vandenbroucke
  12. Escaping from a human capital trap? Italy’s regions and the move to centralized primary schooling, 1861 - 1936 By Gabriele Cappelli
  13. Mobility of Students and Quality of Higher Education: An Empirical Analysis of the “Unified Brain Drain” Model By Elise S. Brezis; Ariel Soueri
  14. Big five personality traits and academic performance in Russian universities By John Nye; Ekaterina Orel; Ekaterina Kochergina
  15. CEO Compensation and Bank Performance By Athar, Iqbal; Khan, Muhammad Irfan; Ali, Saffar
  16. Human Capital and Fertility in Chinese Clans Before Modern Growth By Carol H. Shiue
  17. Reciprocity, Matching, and Wage Competition By Maria Micevski
  18. Risking Other People’s Money: Experimental Evidence on Bonus Schemes, Competition, and Altruism By Andersson, Ola; Holm, Håkan J.; Tyran, Jean-Robert; Wengström, Erik
  19. Capital formation and economic growth under central planning and transition: a theoretical and empirical analysis, ca. 1920-2008 By Peter Foldvari; Bas van Leeuwen; Dimitry Didenko
  20. JOB SEARCH COSTS AND INCENTIVES By Andriy Zapechelnyuk; Ro'i Zultan

  1. By: Esteban Klor; Sebastian Kube; Eyal Winter; Ro'i Zultan (BGU)
    Abstract: Conventional wisdom suggests that a global increase in monetary rewards should induce agents to exert higher effort. In this paper we demonstrate that this may not hold in team settings. In the context of sequential team production with positive externalities between agents, incentive reversal might occur: an increase in monetary rewards (either because bonuses increase or effort costs decrease) may lead agents to exert lower effort in the completion of a joint task — even if agents are fully rational, self-centered money maximizers. Herein we discuss this seemingly paradoxical phenomenon and report on two experiments that provide supportive evidence.
    Keywords: Incentives, Incentive Reversal, Team Production, Externalities, Laboratory Experiments, Personnel Economics.
    JEL: C92 D23 J31 J33 J41 M12 M52
    Date: 2013
  2. By: Fuhai Hong; Tanjim Hossain; John A. List; Migiwa Tanaka
    Abstract: A well-recognized problem in the multitasking literature is that workers might substantially reduce their effort on tasks that produce unobservable outputs as they seek the salient rewards to observable outputs. Since the theory related to multitasking is decades ahead of the empirical evidence, the economic costs of standard incentive schemes under multitasking contexts remain largely unknown. This study provides empirical insights quantifying such effects using a field experiment in Chinese factories. Using more than 2200 data points across 126 workers, we find sharp evidence that workers do trade off the incented output (quantity) at the expense of the non-incented one (quality) as a result of a piece rate bonus scheme. Consistent with our theoretical model, treatment effects are much stronger for workers whose base salary structure is a flat wage compared to those under a piece rate base salary. While the incentives result in a large increase in quantity and a sharp decrease in quality for workers under a flat base salary, they result only in a small increase in quantity without affecting quality for workers under a piece rate base salary.
    JEL: C9 C90 C93 D01 D22
    Date: 2013–11
  3. By: Borghans, Lex (Department of Economics and Research Centre for Education and the Labour Market, Maastricht University); Meijers, Huub (UNU-MERIT/MGSoG and Department of Economics, Maastricht University); Weel, Bas ter (CPB Netherlands Bureau for Economic Policy Research and Department of Economics, Maastricht University)
    Abstract: This research provides an economic model of the way people behave during an IQ test. We distinguish a technology that describes how time investment improves performance from preferences that determine how much time people invest in each question. We disentangle these two elements empirically using data from a laboratory experiment. The main findings are that both intrinsic (questions that people like to work on) and extrinsic motivation (incentive payments) increase time investments and as a result performance. The presence of incentive payments seems to be more important than the size of the reward. Intrinsic and extrinsic motivations turn out to be complements.
    Keywords: incentives, cognitive test scores
    JEL: J20 J24
    Date: 2013
  4. By: Anna Ruzik-Sierdzinska; Claudia Villosio; Michele Belloni; Maciej Lis; Monika Potoczna
    Abstract: This NEUJOBS research report focuses on links between age, productivity and lifelong learning. Various data sources (EU-SILC, LFS, Structure of Earnings Survey, SHARE, ELSA, SHARELIFE) and methodological approaches were used in this report. Our analysis identifies clusters of countries with common characteristics of age-earnings profiles (for certain groups of employees) and allows for an explanation of those differences. Some differences can be attributed to the share of sectors, education types, and occupations in country-specific employment. Others are due to labour market institutions and the (dis)incentives to work at older ages provided by social security systems. Additionally, the dynamics of earnings after age 50 differ less between educational and occupational groups than at earlier ages. We show that the dynamics of average wages are strongly influenced by the timing of entering and leaving labour market. An estimation of the impact of LLL on productivity (measured by earnings) at older ages shows that for employees aged 50+, participation in training increases wages in the short-term.
    Keywords: Productivity, Age-Earning Profiles, Lifelong Learning
    JEL: J24 J31
    Date: 2013–10
  5. By: Esubalew Alehegn; Silvia Sacchetti; Ermanno Tortia
    Abstract: Though the measurement and implication of human capital on economic growth has been well established since the works of Becker in the 1960s, recently Florida has argued that creative class is superior to human capital in explaining economic growth. The underlying difference between the two scholars is a measurement approach in which while Becker uses education as indicator of human capital Florida employs occupation as an identifier of the creative class. We exploit administrative data from the Institute for Employment Research (IAB) over the years 1998-2008 and employ system GMM to estimate and compare the effects on regional economic performance of human capital and creative class in Germany where economic performance is measured by GDP growth, employment growth and wage growth. The estimation unveils that analysis of regional economy through creative class in place of human capital can be used as an alternative approach yet the creative class, as has been praised by Florida, is not found to be superior to human capital in explicating economic performance of regions. Indeed, albeit the share of creative class (creative core and creative professionals) and university graduates have positive and robust impacts on GDP growth it is by no means the share of university graduates that have a far greater impact on economic growth. The opposite holds for employment growth and is inconclusive for wage growth. This finding may imply that the creative class driven economic development is directed towards more labor intensive forms of development whilst human capital is directed towards the form of development characterized by specialization and high capital intensity.
    Keywords: Creative class, human capital, economic performance and dynamic panel.
    JEL: R11 O31 O52
    Date: 2013–11–11
  6. By: Lechmann, Daniel S.; Schnabel, Claus
    Abstract: Utilising a large representative data set for Germany, this study contrasts absenteeism of self-employed individuals and paid employees. We find that absence from work is clearly less prevalent among the self-employed than among paid employees. Only to a small extent, this difference can be traced back to differences in health status and job satisfaction. Furthermore, the gap in absenteeism is apparently not driven by different behaviour in case of sickness as we find no difference in the prevalence of presenteeism between the two groups. We suspect that different behaviour in case of healthiness plays a role, highlighting potential shirking and moral hazard problems in paid employment. -- Unter Verwendung eines großen repräsentativen Datensatzes für Deutschland stellt diese Studie Fehlzeiten von Selbständigen und abhängig Beschäftigten gegenüber. Dabei zeigt sich, dass es bei Selbständigen weit weniger verbreitet ist, dem Arbeitsplatz fernzubleiben, als bei abhängig Beschäftigten. Dieser Unterschied kann nur zu einem kleinen Teil auf Unterschiede im Gesundheitszustand und der Arbeitsplatzzufriedenheit zurückgeführt werden. Anscheinend ist der Unterschied bei den Fehlzeiten auch nicht durch unterschiedliches Verhalten im Krankheitsfall zu erklären, da wir keine Unterschiede zwischen beiden Gruppen hinsichtlich Präsentismus feststellen. Wir vermuten, dass unterschiedliches Verhalten bei Gesundheit eine Rolle spielt, was auf mögliche Probleme von Moral Hazard und gezieltem Fernbleiben in abhängiger Beschäftigung hindeutet.
    Keywords: absenteeism,Germany,self-employed,sick leave
    JEL: I19 J22 J23
    Date: 2013
  7. By: Sergey Solntsev (National Research University Higher School of Economics. Laboratory for Labor Market Studies. Senior Research Fellow)
    Abstract: This paper presents an analysis of changes in senior management labor market in Russia during the 2000s. The original data consists of information on the appointments of 5771 senior managers in Russia from late 1999 until 2009. The study focuses on mobility between economic sectors, and managerial positions, human capital, including education and experience and the proportion of women and expats in the senior management market. We found that the Russian labor market of top-level managers can be described as a relatively closed market, where professional executives dominate. During the period of economic growth Russian companies preferred to hire outsiders partly due to the lack of appropriate internal candidates. The typical senior manager in Russia is a 30-40 years old man with a degree in economics, engineering, or science, who moves every 2-3 years to their next executive position. The most significant changes, noted during the crisis, were the increase of the firms’ demand for senior managers’ specific human capital and the decrease of demand for general human capital.
    Keywords: senior managers, corporate governance, labor market, career mobility, human capital, economic crisis.
    JEL: J24 J62 J63 M51
    Date: 2013
  8. By: Koerselman, Kristian (Abo Akademi University); Uusitalo, Roope (HECER)
    Abstract: Investing in human capital increases lifetime income, but these investments may involve substantial risk. In this paper we use a Finnish panel spanning 22 years to predict the mean, the variance and the skew of the present value of lifetime income, and to calculate certainty equivalent lifetime income at different levels of education. We find that university education is associated with about a half a million euro increase in discounted lifetime disposable income compared to vocational high school. Accounting for risk does little to change this picture. By contrast, vocational high school is associated with only moderately higher lifetime income compared to compulsory education, and the entire difference is due to differential nonemployment.
    Keywords: lifetime income, risk, education, human capital
    JEL: C33 I24 J31
    Date: 2013–11
  9. By: Olivier Godechot (IEP Paris - Sciences Po Paris - Institut d'études politiques de Paris - Institut d'Études Politiques [IEP] - Paris - PRES Sorbonne Paris Cité - Fondation Nationale des Sciences Politiques [FNSP], OSC - Observatoire sociologique du changement - Sciences Po - CNRS : UMR7049, MaxPo - Max Planck Sciences Po Center on Coping with Instability in Market Societies - Max Planck Institute for the Study of Societies - IEP Paris); Claudia Senik (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), UP4 - Université Paris 4, Paris-Sorbonne - Université Paris IV - Paris Sorbonne - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique)
    Abstract: This paper looks at the association between wage satisfaction and different notions of reference wage, based on a matched employer-employee dataset. It shows that workers' satisfaction depends on otherpeople's income in different ways. Relative income concerns are important, but we also find robust evidence of signal effects. For instance, workers are happier the higher the median wage in their firm, holding their own wage constant. This is true of all employees, whatever their relative position in the firm. This signal effect is stronger for young people and for women. These findings are based on objective measures of earnings as well as subjective declarations about wage satisfaction, awareness of other people's wage and reported income comparisons.
    Keywords: Income comparisons ; Income distribution ; Job satisfaction ; Wage satisfaction ; Signal effect ; Matched employer-employee survey data
    Date: 2013–11
  10. By: Blanco, Mariana (University of Rosario); Dalton, Patricio S. (Tilburg University); Vargas, Juan F. (University of Rosario)
    Abstract: We investigate whether and how the type of unemployment benefit institution affects productivity. We designed a field experiment to compare workers' productivity under a welfare system, where the unemployed receive an unconditional monetary transfer, with their productivity under a workfare system, where the transfer is received conditional on the unemployed spending some time on ancillary activities. First, we find that having an unemployment benefit institution, regardless of whether it makes transfers conditional or unconditional, increases workers' productivity. Second, we find that productivity is higher under Welfare than under Workfare. Becoming unemployed under Welfare comes at the psychological cost of a drop in self-esteem, presumably due to the shame or stigma associated with receiving an unconditional unemployment benet. We document the empirical relevance of precisely this channel. The differences we observe in productivity suggest that this psychological cost acts as an extra non- monetary incentive for workers under Welfare to put a higher effort in their work.
    Keywords: Unemployment Benefits, Workfare, Productivity, Self-esteem, Shame.
    Date: 2013
  11. By: Diego Restuccia; Guillaume Vandenbroucke
    Abstract: Consider the following facts. In 1950 the richest ten-percent of countries attained an average of 8 years of schooling whereas the poorest ten-percent of countries attained 1.3 years, a 6-fold difference. By 2005, the difference in schooling declined to 2-fold. The fact is that schooling has increased faster in poor than in rich countries. What explains educational attainment differences across countries and their evolution over time? We develop an otherwise standard model of human capital accumulation with two important features: non-homothetic preferences and an operating labor supply margin. We use the model to assess the quantitative contribution of productivity and life expectancy differences across countries in explaining educational attainment. Calibrating the parameters of the model to reproduce the historical time-series data for the United States, we find that the model accounts for 90 percent of the difference in schooling levels between rich and poor countries in 1950 and 64 percent of the increase in schooling over time in poor countries. The model generates a faster increase in schooling in poor than in rich countries consistent with the data. These results highlight the importance of productivity and development in education, emphasizing the crucial role of productivity improvements in poor countries relative to often-discussed educational policies.
    Keywords: Schooling, productivity, life expectancy, education policy, labor supply.
    JEL: O1 O4 E24 J22 J24
    Date: 2013–11–21
  12. By: Gabriele Cappelli
    Abstract: - The present paper explores the role of public policy in the development of Italy’s human capital in the late 19th century and the Interwar period. It aims at understanding whether a system of decentralized primary education slowed down regional convergence in schooling. This work puts forward the hypothesis that, under such a system, the country was subject to a human capital trap – since poor and backward areas could not afford to invest a suitable amount of resources in schooling. Additionally, it investigates whether a more centralized system, introduced in 1911, loosened up the trap, fostered the accumulation of human capital and reduced the country’s regional disparities. Original qualitative evidence and new data on schooling confirm the existence of such a trap, and underline the positive role of centralization in the Interwar period. The econometric model implemented strengthens these findings: poor regions could not improve the quality of education, which in turn would give rise to a vicious circle. Centralized primary education certainly fostered the development of Italy’s schooling in the Interwar period. However, human capital regional disparities across the country persisted, a result that calls for further research on the topic.
    JEL: I22 I25 I28 N33 N43 O15 O20
    Date: 2013–10
  13. By: Elise S. Brezis (Bar-Ilan University); Ariel Soueri
    Abstract: Globalization has led to a vast flow of migration of workers but also of students. The purpose of this paper is to analyze the migration of individuals encompassing decisions already at the level of education. We present a “unified brain” drain model that incorporates the decisions of an individual related to migration vis‐à‐vis both education and work. In the empirical part, this paper addresses international flows of migration within the Bologna Process and presents strong evidence of concentration of students in countries with high‐quality education.
    Keywords: Brain drain; Globalization, Higher education; Human capital; Migration, Mobility, Bologna process
    JEL: F22 I23 J24
    Date: 2013–11
  14. By: John Nye (George Mason University and National Research University – Higher School of Economics, Moscow, academic advisor of International Laboratory for Institutional Analysis of Economic Reforms.); Ekaterina Orel (National Research University-Higher School of Economics, Moscow, research fellow in International Laboratory for Institutional Analysis of Economic Reforms.); Ekaterina Kochergina (National Research University – Higher School of Economics, Moscow, research assistant in International Laboratory for Institutional Analysis of Economic Reforms.)
    Abstract: We study which Big Five personality traits are associated with academic performance among a sample of Russian university students using results from the Unified State Examination (for university admissions) and their current grade point averages as measures of academic performance. We find that Introversion, Agreeableness, Neuroticism, and Openness to experience have observable ties to academic performance. Those results partially confirm existing international studies, but our findings are notable for the relative unimportance of conscientiousness for success in our Russian sample. We suggest that cross-cultural differences in educational environment may explain why this trait seems less obviously important in the analysis
    Keywords: personality traits, academic success, psychology of education, Big Five, academic performance measurement.
    JEL: Z I23
    Date: 2013
  15. By: Athar, Iqbal; Khan, Muhammad Irfan; Ali, Saffar
    Abstract: This study sets out to discover the determinants of compensation of the chief executive officers in the banking industry of Pakistan. Accounting based performance measures and size of the firm have been used as predictors. Results of the study are consistent with arguments, suggesting significant and positive impact of size (assets) of the firm on CEO compensation while no association is found with either of the performance measure of the firm except income before tax (IBT). Return on Assets and Return on Equity failed to explain the given phenomenon. The study further elaborates that number of employees (NOEMP) greatly influences on CEO compensation but negatively. This relationship may be due to the unique characteristics of Pakistan's social and economic structure.
    Keywords: Compensation, Corporate Governance, Corporate Control, Return on Assets,Return on Investment
    JEL: G34 G21
    Date: 2012–10–15
  16. By: Carol H. Shiue
    Abstract: This paper studies the pre-industrial origins of modern-day fertility decline. The setting is in Anhwei Province, China over the 13th to 19th centuries, a period well before the onset of China’s demographic transition and industrialization. There are four main results. First, we observe non-Malthusian effects in which high income households had relatively fewer children. Second, higher income households had relatively more educated sons, consistent with their greater ability to support major educational investments. Third, those households that invested in education had fewer children, suggesting that households producing educated children were reallocating resources away from child quantity and towards child quality. Fourth, over time, demand for human capital fell significantly. The most plausible reason is the declining returns to educational investments. The findings point to a role for demography in explaining China’s failure to industrialize early on.
    JEL: I25 J11 O15
    Date: 2013–11
  17. By: Maria Micevski (Department of Economics, University of Konstanz, Germany)
    Abstract: The presented model demonstrates how the coexistence of reciprocal and selfish types influences the formation of employment relationships, their profitability, wage differentials, wage competition, and unemployment in the presence of moral hazard. Wage and profitability differentials result from the differences in workers’ reactions to the managers’ wage offers. Moreover, these behavioral differences affect managers’ preferences for worker types. Thus, managers might make higher offers to attract the preferred worker type in a competitive labor market with excess supply of labor compared to a situation without competition. The resulting competitive matching allocates favored reciprocal workers to reciprocal managers. Consequently, unemployment arises first among unfavored reciprocal and selfish workers, respectively.
    Keywords: reciprocity, gift exchange, matching, profitability, wage differentials, wage competition, unemployment
    JEL: D03 D21 E24 J31
    Date: 2013–11–21
  18. By: Andersson, Ola (Research Institute of Industrial Economics (IFN)); Holm, Håkan J. (Lund University); Tyran, Jean-Robert (University of Vienna); Wengström, Erik (Lund University)
    Abstract: We study risk taking on behalf of others in an experiment on a large random sample. The decision makers in our experiment are facing high-powered incentives to increase the risk on behalf of others through hedged compensation contracts or with tournament incentives. Compared to a baseline condition without such incentives, we find that the decision makers respond strongly to these incentives that result in an increased risk exposure of others. However, we find that the increase in risk taking is mitigated by altruistic preferences and pro-social personality traits.
    Keywords: Incentives; Competition; Hedging; Risk taking; Social preferences
    JEL: C72 C90 D30 D81
    Date: 2013–11–19
  19. By: Peter Foldvari; Bas van Leeuwen; Dimitry Didenko
    Abstract: According to the consensus view it was physical capital accumulation that primarily drove economic growth during the early socialist period. Growth models incorporating both human and physical capital accumulation (Caballe and Santos 1993, Barro and Sala-i-Martin 2004) lead to the conclusion that a high physical/human capital ratio can cause a lower economic growth in the long-run. In this paper we show theoretically and empirically that according to the logic of the socialist planner, it was optimal to achieve a higher physical to human capital ratio in socialist countries than in the West. Using a VAR analysis, we find empirical confirmation that within the Material Product System of national accounting the relative dominance of investment in physical capital accumulation relative to human capital was indeed more efficient than under an SNA system of national accounts.
    Keywords: central planning, capital accumulation, human capital, Soviet Union, national accounts.
    Date: 2013–11
  20. By: Andriy Zapechelnyuk (School of Economics and Finance, Queen Mary, University of London, Mile End Road, London E1 4NS, UK); Ro'i Zultan (BGU)
    Abstract: The costs of searching for a job vacancy are typically associated with fric- tion that deters or delays employment of potentially productive individuals. We demonstrate that in a labor market with moral hazard where effort is non- contractible, job search costs play a positive role, whose effect may outweigh the negative implications. As workers are provided incentives to exert effort by the threat of losing their job and having to search for a new vacancy, a reduction in job search costs leads to fewer employees willing to exert effort. The overall lower productivity will make more individuals and firms opting to stay out of the labor market, resulting in lower employment and decreased welfare. Eventually, a reduction of jobs search costs below a certain level results in collapse of the labor market.
    Keywords: job search, moral hazard, labor market, unemployment insurance
    JEL: D83 J64 J65
    Date: 2013

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