nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2013‒12‒15
24 papers chosen by
Tommaso Reggiani
University of Cologne

  1. Incentives in the Public Sector: Evidence from a Government Agency By Ratto, Marisa; Tominey, Emma; Propper, Carol; Burgess, Simon M.
  2. Acquiring Human Capital through the Generations by Migration By Smith, James P.; Delaney, Liam
  3. Becoming “We” instead of “I” : Identity management and incentives in the workplace By Jocelyn Donze; Trude Gunnes
  4. What is a fair wage? Reference points, Entitlements and Gift Exchange By Eleonora Bottino; Cintia Goddio; Praveen Kujal
  5. Time is Money: Life Cycle Rational Inertia and Delegation of Investment Management By Hugh H. Kim; Raimond Maurer; Olivia S. Mitchell
  6. The Impact of Management Incentives in Intergroup Contests By Gerald Eisenkopf
  7. The Composition of Exports and Human Capital Acquisition By William W. Olney
  8. Tax Evasion, Human Capital, and Productivity Induced Tax Rate Reduction By Max Gillman; Michal Kejak
  9. Do Men and Women Respond Differently to Competition? Evidence from a Major Education Reform* By Louis-Philippe Morin
  10. Managing the Family Firm: Evidence from CEOs at Work By Oriana Bandiera; Andrea Prat; Raffaella Sadun
  11. Age and Opportunities for Promotion By Machado, C. Sofia; Portela, Miguel
  12. Vertically Splitting a Firm: Promotion and Demotion in a Team Production Experiment By Tibor Neugebauer; Susana Cabrera; Enrique Fatas; Juan A. Lacomba
  13. Are Females Scared of Competing with Males? Results from a Field Experiment By De Paola, Maria; Gioia, Francesca; Scoppa, Vincenzo
  14. Employee Discrimination against Female Executives By Kodama, Naomi; Odaki, Kazuhiko
  15. Managerial style and bank loan contracting By Francis, Bill B.; Hasan, Iftekhar; Zhu, Yun
  16. Incentive Pay and Performance: Insider Econometrics in a Multi-Unit Firm By Bogaard, Hein; Svejnar, Jan
  17. Overeducation at a Glance: Determinants and Wage Effects of the Educational Mismatch, Looking at the AlmaLaurea Data By Caroleo, Floro Ernesto; Pastore, Francesco
  18. Education and Human Capital Development to Strengthen R&D Capacity in the ASEAN By Tereso S. TULLAO, Jr.; Christopher James CABUAY
  19. Comparing Real Wage Rates By Orley Ashenfelter
  20. Teaching Practices and Social Capital By Yann Algan; Pierre Cahuc; Andrei Shleifer
  21. Motivation in paid work for non-profit organisations: the case of Private Social Solidarity Institutions By Teresa Proenca; Simone Cristina
  22. Incentives Matter: Reflections on the Role of Incentives in Scientific Productivity By Fabella, Raul V.
  23. Rankings, Random Successes, and Individual Performance By Legge, Stefan; Schmid, Lukas
  24. Delegation and Performance By Olena Senyuta

  1. By: Ratto, Marisa; Tominey, Emma; Propper, Carol; Burgess, Simon M.
    Abstract: This paper addresses a lack of evidence on the impact of performance pay in the public sector by evaluating a pilot scheme of incentives in a major government agency. The incentive scheme was based on teams and covered quantity and quality targets, measured with varying degrees of precision. We use data from the agency's performance management system and personnel records plus matched labour market data. We focus on three main issues: whether performance pay matters for public service worker productivity, what the team basis of the scheme implies, and the impact of the differential measurement precision. We show that the use of performance pay had no impact at the mean, but that there was significant heterogeneity of response. This heterogeneity was patterned as one would expect from a free rider versus peer monitoring perspective. We found that the incentive scheme had a substantial positive effect in small teams, and a negative response in large teams. We found little impact of the scheme on quality measures, which we interpret as due to the differential measurement technology. We show that the scheme in small teams had non-trivial effects on output, and our estimates suggest that the use of incentive pay is much more cost effective than a general pay rise.
    Keywords: Incentives; public sector; teams; performance; personnel economics;
    JEL: J33 J45 D23
    Date: 2012–07
  2. By: Smith, James P. (RAND); Delaney, Liam (University of Stirling)
    Abstract: Our focus will be on the role of migration to the United States from a set of important European sending countries as a device for improving the human capital of the children and grandchildren of migrants as measured by their education. In this paper, we derive a new and conceptual more appropriate measure of the generational gains in schooling attributable to migration by taking into account the correct counter-factual – the generational education gains that would have taken place if these migrants had remained in their sending countries. We find that the two European countries where the descendants gained the most in terms of human capital are Italy and Poland.
    Keywords: human capital, education, migration
    JEL: I24 I25
    Date: 2013–11
  3. By: Jocelyn Donze; Trude Gunnes (Statistics Norway)
    Abstract: This article studies how a firm fosters formal and informal interaction among its employees to create a collective identity and positively influence their effort. We develop an agency model, in which employees have both a personal and a social ideal for effort. The firm does not observe the personal ideals, which gives rise to an adverse selection problem, but can make its workforce more sensitive to the social ideal by allocating part of working hours to social interaction. We show that there are two reasons why the firm invests in social capital. First, it reinforces the effectiveness of monetary incentives. Second, by creating a shared identity in the workforce, the firm is able to reduce the adverse selection problem. We also show that the firm allocates more time to bonding activities when employees have low personal ideals for effort or when they are more heterogeneous as regards these ideals.
    Keywords: Agency theory; Social interaction; Social norms; norm regulation
    JEL: D2 D8 J3 M5
    Date: 2013–10
  4. By: Eleonora Bottino; Cintia Goddio; Praveen Kujal
    Abstract: Society adopts institutions that can change incentives, reference points and entitlements for the economic agents. In this paper we look at two stylized wage setting institutions and their effect on wage offers and effort in the classic gift exchange experiments of Fehr, Kirchsteiger and Riedl (1993). The first one is the exogenously imposed minimum wage institution (first instituted in New Zealand in 1894). The second institution we look is an endogenous wage proposal institution where workers first make wage proposals. We find that the imposition of an exogenous minimum wage floor at the competitive outcome lowers average wage offers. However, workers do not negatively reciprocate and continue to offer high effort. In the second institution workers make non-binding (endogenous) minimum wage proposals. The introduction of endogenous minimum wage proposals marginally increases wage offers while, average effort decreases when wage proposals are not matched. Finally, relative to the baseline, overall efficiency with the non-binding minimum wage decreases, while, efficiency is only slightly higher under endogenous minimum wage proposals. We find that clear evidence that the institutional structure has important implications towards wage offers, effort and efficiency.
    JEL: J2 J3
    Date: 2013
  5. By: Hugh H. Kim; Raimond Maurer; Olivia S. Mitchell
    Abstract: We investigate the theoretical impact of including two empirically-grounded insights in a dynamic life cycle portfolio choice model. The first is to recognize that investors incur opportunity costs in terms of current and future human capital accumulation when managing their own financial wealth, particularly if human capital is acquired via learning by doing. The second is that we incorporate age-varying efficiency patterns in financial decision making. Both enhancements produce inactivity in portfolio adjustment patterns consistent with empirical evidence. We also analyze individuals’ optimal choice between self-managing their wealth versus delegating the task to a financial advisor. Delegation proves most valuable to the young and the old. Our calibrated model quantifies welfare gains from including investment time and money costs, as well as delegation, in a life cycle setting.
    JEL: D1 D11 D12 D13 D14 D91 G11 J14 J22 J26
    Date: 2013–12
  6. By: Gerald Eisenkopf
    Abstract: In intergroup contests a manager advises and motivates her group's members. Her rewards often depend on the subsequent contest expenditure of the members. I test whether such incentives undermine the credibility and effectiveness of a manager's efforts. In the different experimental treatments the managers either benefit from very high or low expenditure or get a predetermined payment. The results show that different management incentives shape the expenditure of the group members even if managers have an advisory role only. However, group members follow recommendations more closely if management compensation is not linked to contest expenditures.
    Keywords: Communication, Experiment, Rent-seeking, Management compensation, Group
    Date: 2013
  7. By: William W. Olney (Williams College)
    Abstract: This paper investigates whether the composition of a country's exports affects educational attainment. A simple model shows how trade affects the relative wages of skilled and unskilled labor which in turn changes the incentives to go to school. These predictions are tested using data spanning forty years and over a hundred countries. The results confirm that exporting unskill-intensive goods depresses average years of schooling, while exporting skill-intensive goods increases years of schooling. Endogeneity is address by using bilateral trade data and the gravity model to identify variation in exports that is unrelated to domestic factors. The results provide insight into which types of exports are most beneficial for human capital formation and how trade can exacerbate initial differences in factor endowments across countries.
    Keywords: Exports; Education; Human Capital
    JEL: F14 F16 J24
    Date: 2013–11
  8. By: Max Gillman (Department of Economics, University of Missouri-St. Louis); Michal Kejak
    Abstract: The paper shows a key role of human capital in explaining how US postwar growth and welfare could have increased while tax rates declined. As in evidence, we assume that the share of government revenue in output has remained stable and model tax evasion within an endogenous growth model with human capital. A trend upwards in the productivity of the goods or human capital sectors grad- ually decreases the degree of tax evasion, and causes a trend upwards in time spent in human capital accumulation. These productivity increases also increase the ratio of tax revenue to GDP at any given tax rate such that the tax rate must be reduced in order to be consistent with the stylized fact of a constant share of government revenue in output. Based on estimated US postwar goods and hu- man capital sectoral productivities, the model explains 30% of the actual decline in a weighted average of postwar US top marginal personal and corporate tax rates. The estimated joint sectoral productivity increases are asymmetric with a larger relative increase in the human capital investment sector, a result related to McGrattan and PrescottÂ’s (2010) relatively larger increase in the productivity of the sector producing intangible capital relative to the goods sector. We show that in a special case of exogenous growth without human capital investment, the explanatory power of the tax trend drops signiÂ…cantly.
    Keywords: Tax evasion, intermediation technology, endogenous growth, human capital productivity, dynamic general equilibrium.
    JEL: E13 E62 H26 O41
    Date: 2013–11
  9. By: Louis-Philippe Morin (Department of Economics, University of Ottawa, Ottawa, ON)
    Abstract: This paper provides new evidence of gender differences in response to increased competition, focusing on important life tasks performed in a regular social environment. The analysis takes advantage of a major education reform in Ontario that exogenously increased competition for university grades. Comparing students pre- and post-reform using rich administrative data, I find that male average grades and the proportion of male students graduating `on time' increased relative to females. Further, the evidence indicates that these changes were due to increased relative effort rather than self-selection. The findings have implications for the delivery of education and incentive provision more generally
    Keywords: competition, gender differences, higher education, performance, selection
    JEL: J16 I21
    Date: 2013
  10. By: Oriana Bandiera; Andrea Prat; Raffaella Sadun
    Abstract: CEOs affect the performance of the firms they manage, and family CEOs seem to weaken it. Yet little is known about what top executives actually do, and whether it differs by firm ownership. We study CEOs in the Indian manufacturing sector, where family ownership is widespread and the productivity dispersion across firms is substantial. Time use analysis of 356 CEOs of listed firms yields three sets of findings. First, there is substantial variation in the number of hours CEOs devote to work activities, and longer working hours are associated with higher firm productivity, growth, profitability and CEO pay. Second, family CEOs record 8% fewer working hours relative to professional CEOs. The difference in hours worked is more pronounced in low competition environments and does not seem to be explained by measurement error. Third, difference in diffrences estimates with respect to the cost of effort, due to weather shocks and popular sport events, reveal that the observed difference between family and professional CEOs is consistent with heterogeneous preferences for work versus leisure. Evidence from six other countries reveals similar findings in economies at different stages of development.
    Date: 2013–12
  11. By: Machado, C. Sofia (Instituto Politécnico do Cávado e do Ave); Portela, Miguel (University of Minho)
    Abstract: Using a panel of new firms and their employees, this paper studies the promotion opportunities for older workers within the same firm. Survival analysis suggests that younger employees experience shorter times to promotion than older workers and, therefore, the latter face a smaller likelihood of promotion. Although men are promoted more often than women, empirical results show that women have shorter survival times to promotion than men. Also, previous promotions are stronger determinants of subsequent ones and this finding provides support to the evidence on promotion "fast-tracks".
    Keywords: aging, older workers, employment relationships, promotion
    JEL: J14 J21 D21 J62
    Date: 2013–11
  12. By: Tibor Neugebauer; Susana Cabrera; Enrique Fatas; Juan A. Lacomba (LSF)
    Abstract: The paper reports an experimental study on a promotion-demotion mechanism to mitigate the free-rider problem in team production. The "mechanism hierarchically splits a group in two; we refer to one subgroup as" the major league and to the other as the minor league. The most cooperative subject of the minor league is switched with the least cooperative subject in the major league. The results reveal a significant increase of cooperation levels relative to the standard voluntary contribution mechanism. We argue that competition arises and contributions increase because some subjects believe in a larger short-term continuation payoff from the major league than from the minor league. The data suggest that the promotion-demotion mechanism leads to a self-sorting of subjects according to their cooperativeness.
    Keywords: experiment, group incentives, organization design
    JEL: C92 H41 J33 J4
    Date: 2012
  13. By: De Paola, Maria (University of Calabria); Gioia, Francesca (University of Calabria); Scoppa, Vincenzo (University of Calabria)
    Abstract: We conducted a field experiment involving 720 Italian undergraduate students to investigate the existence of gender differences in performance in competitive settings and whether performance is affected by one's opponent gender. The experimental design was aimed at disentangling gender differences in taste for competition from other differences in psychological attitudes, such as self-confidence and risk aversion. Students were invited to undertake a midterm exam under a tournament scheme having as a prize some bonus points to add to the final grade. Students competed in pairs of equal predicted ability but different gender composition. We find that females are as likely as males to take part in the competition and to obtain a good performance. The gender of one's competitor does not play any role in shaping students' behavior. Men and women perform similarly both in the competitive and in the non-competitive environment.
    Keywords: gender differences, attitude toward competition, psychological differences, tournaments, field experiment, student achievements
    JEL: J16 J24 J70 C93
    Date: 2013–12
  14. By: Kodama, Naomi; Odaki, Kazuhiko
    Abstract: The theory of employee discrimination gives a possible explanation for the scarcity of female executive officers. This paper tests the employee discrimination hypothesis by measuring the wage premium received by employees working with female executives against their tastes for discrimination. Using a fixed effects analysis of establishment-level panel data on Japanese employees, we separate the discrimination premiums that would otherwise cause a bias from the establishment-level unobserved productivity and unobserved employee characteristics by gender of executives. Our findings reveal that both male and female employees receive small but significant wage premiums (0.6-0.9 percent) when working for female executives.
    Keywords: employee discrimination, female executive, compensating wage differential
    JEL: J31 J33 J71
    Date: 2013–11
  15. By: Francis, Bill B. (Lally School of Management, Rensselaer Polytechnic Institute); Hasan, Iftekhar (Fordham University and Bank of Finland); Zhu, Yun (Lally School of Management, Rensselaer Polytechnic Institute)
    Abstract: This paper provides direct evidence that managerial style is a key determinant of the firm’s cost of capital, in the context of private debt contracting. Applying the novel empirical method by Abowd, Karmarz, and Margolis (1999) to a large sample that tracks job movement of top managers, we find that managerial style is a critical factor that explains a large part of the variation in loan contract terms. The loan-term-related managerial styles correlate with managerial styles of firm performance and corporate decisions, implying that certain managers achieve better firm performance via lower cost of capital and other desirable non-price loan terms. We further find direct evidence that banks “follow” managers’ job changes and offer loan contracts with preferential terms to their new firms. Some of the preferred managerial styles reflect managers’ personal characteristics, such as managerial ability, authority and conservatism.
    Keywords: managerial style; cost of capital; bank loan contract; firm performance; firm decision-making
    JEL: G21 G32 G34
    Date: 2013–11–23
  16. By: Bogaard, Hein (George Washington University); Svejnar, Jan (Columbia University)
    Abstract: We exploit organizational reforms in a foreign-owned bank in Central-East Europe to study the implementation of modern HRM policies in an emerging market context. We have branch-level data and use our knowledge of the process that led to the adoption of the reforms to implement two estimators that address endogeneity bias in a complementary fashion: an IV approach and Generalized Propensity Score estimation. Our results show that some of the reforms had a positive impact on productivity, but they also underscore the risks of quantity-based incentives where quality is important.
    Keywords: insider econometrics, endogeneity of HRM policies, incentives, foreign ownership, banking, Central and Eastern Europe
    JEL: F23 G21 M52
    Date: 2013–12
  17. By: Caroleo, Floro Ernesto (University of Naples Parthenope); Pastore, Francesco (University of Naples II)
    Abstract: This paper provides the first available evidence on overeducation/overskilling based on AlmaLaurea data. We focus on jobs held 5 years after graduation by pre-reform graduates in 2005. Overeducation/overskilling are relatively high – at 11.4 and 8% – when compared to EU economies. Ceteris paribus they tend to be more frequent among children of parents with lower educational levels, through school tracking. Most arts degrees and social sciences, but also Geology and Biology are associated to both types of the educational mismatch. The quality of education is also a factor, suggesting that in addition to the low demand for skills, one should also reckon the inability of the educational system to provide work-related skills. Moreover, we find a non-conditional wage penalty of 20% and 16% and a conditional one of about 12% and of 7%, respectively. Heckit returns a sample selection corrected penalty slightly higher, supporting not only the job competition and job assignment models, but also the human capital model.
    Keywords: university-to-work transition, overeducation, overskilling, sample selection bias, AlmaLaurea, Italy
    JEL: C25 C26 C33 I2 J13 J24
    Date: 2013–11
  18. By: Tereso S. TULLAO, Jr. (Angelo King Institute for Ecohomic Business Studies De La Salle University); Christopher James CABUAY (Angelo King Institute for Ecohomic Business Studies De La Salle University)
    Abstract: The role of education is crucial in process of economic development. Initially, investments in training and education produce the necessary technical workers. At higher levels of economic development, the formation of highly skilled technicians, engineers, and professionals are made through advanced levels of education. The accumulation of sophisticated types of human capital is a major factor in creating the research and innovation infrastructure of a mature economy. Looking at the research and development (R&D) capacity of the ASEAN region, we see that most countries still have ways to go in order to fully develop their innovative capacity. Engineering, which is a significant source of innovations in a country, needs to have its curriculum revamped to adapt to global competition as well as to cater to the need of countries to innovate. This study recommends the improvement of technical competence of engineering education, the exploration of possible cooperation among engineering schools and professionals, learning from advanced economies on the development of advanced skills, the development of the soft skills of engineering students, and adopting an innovation perspective in the development of a nation.
    Keywords: Education, human capital, research and development, innovation, engineering education.
    JEL: I23 I25 J24 O31 O32
    Date: 2013–12
  19. By: Orley Ashenfelter (Princeton University)
    Abstract: A real wage rate is a nominal wage rate divided by the price of a good and is a transparent measure of how much of the good an hour of work buys. It provides an important indicator of the living standards of workers, and also of the productivity of workers. In this paper I set out the conceptual basis for such measures, provide some historical examples, and then provide my own preliminary analysis of a decade long project designed to measure the wages of workers doing the same job in over 60 countries workers at McDonald’s restaurants. The results demonstrate that the wage rates of workers using the same skills and doing the same jobs differ by as much as 10 to 1, and that these gaps declined over the period 2000-2007, but with much less progress since the Great Recession.
    Keywords: wage rate, nominal wage, workers, living standards
    JEL: C81 C82 D24 J31 N30 O57
    Date: 2012–03
  20. By: Yann Algan; Pierre Cahuc; Andrei Shleifer
    Abstract: We use several data sets to consider the effect of teaching practices on student beliefs, as well as on organization of firms and institutions. In student level data, teaching practices (such as teachers lecturing versus students working in groups) exert a substantial influence on student beliefs about cooperation both with each other and with teachers. In cross†country data, teaching practices shape both beliefs and institutional outcomes. The relationship between teaching practices and student test performance is nonlinear. The evidence supports the idea that progressive education promotes social capital.
  21. By: Teresa Proenca (CEF.UP, Faculty of Economics, University of Porto); Simone Cristina (Faculty of Economics, University of Porto)
    Abstract: This research characterizes the motivations of paid employees in Private Social Solidarity Institutions (Instituições Particulares de Solidariedade Social – IPSS ), based on self-determination theory. It analyses the impact of types of motivation and employee identification with an organisation on their intention to stay in the organisation. An online questionnaire was given by the District Union of Private Social Solidarity Institutions of Porto (União Distrital de Instituições Particulares de Solidariedade Social do Porto – UDIPSS Porto) to the employees of the IPSS, and the use of structural equations for data analyses allows characterising the relationship between motivations and the intention to remain in an institution. The results show that the more internalized motivations are those most valued by employees and they also show a strong intention to remain in the institution. Internalized motivation is not predictive on the intention to stay with an organisation; however, integration and external regulation do have predictive roles. It is also possible to conclude that IPSS employees identify strongly with the organisation they work for, and that this intensifies the impact of their motivations in the intention to stay in the organisation.
    Keywords: Motivation; Non-profit organisations (NPOs); Intention to stay; Identification with the organisation.
    JEL: L30
    Date: 2013–12
  22. By: Fabella, Raul V.
    Abstract: Depicting the Philippines as a prescientific society, this paper discusses how the environment plays a significant role in shaping the culture of research and scientific productivity. Such conducive environment includes having an adequate think space, a supportive and engaging critical mass, and most importantly, an efficient incentives system. The paper cites several examples of research institutions in the Philippines which highlighted the importance of collaborative efforts, research networks, strong leadership, and generous rewards in attaining success in their endeavor. It also mentions detriments to productivity such as implicit publication costs, the politics of fairness of equality, and the bias for quantity over quality.
    Keywords: Philippines, research culture, research incentives, research institutions
    Date: 2013
  23. By: Legge, Stefan; Schmid, Lukas
    Abstract: Rankings have become increasingly important over the past decades and impose a sharp distinction between success and failure. In this paper we examine the effects of ranking positions and great successes on individual performance by using a rich set of data on World Cup alpine ski races for the period of 1992-2013. We apply a regression discontinuity design and exploit close races as a source of randomized treatment. Our results suggest substantial short-run effects of randomly assigned podium finishes on performance, especially for racers in the middle of the skill distribution. However, the effects are short-lived and mostly driven by individuals who miss prestigious ranks by a tiny margin. We identify media attention as the key channel for performance effects and provide empirical evidence for an increasing media bias in favor of top-ranked competitors in the last two decades. These findings highlight a serious drawback of rankings.
    Keywords: Performance, Success, Rankings, Media Attention, Skiing
    JEL: D03 L83 M50
    Date: 2013–12
  24. By: Olena Senyuta
    Abstract: This paper empirically investigates how the level of authority delegation is related to the performance of an organization. Decentralized, horizontal organizational structure takes advantage of more effcient decision making, mainly due to more efficient use of "soft" information. The cost of such decentralization is the loss of control and the need to properly incentivise agents who are legitimately given the authority to make decisions. This is the trade-off organization faces when deciding on the level of authority delegation. The effect of authority delegation is studied using empirical data from the banking sector. Different specifications were used to estimate the effect of authority delegation on performance characteristics. Estimates demonstrate that more authority delegated has a positive effect on quantitative measures of bank performance; however, it decreases the quality of decisions taken. Results demonstrate that there is a trade-off between the quantitative and qualitative performance characteristics. While the local bank branch is able to increase loan generation when more authority is delegated to it, there is also some evidence of loan quality deterioration.
    Keywords: banking; organizational structure; authority delegation; soft information; small business lending;
    JEL: D23 D83 G21 L22
    Date: 2013–11

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