nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2014‒02‒15
thirteen papers chosen by
Tommaso Reggiani
University of Cologne

  1. Personnel economics issues: What causes increasing work intensity, and what are the policy responses? By Josheski, Dushko
  2. Skills and the graduate recruitment process: Evidence from two discrete experiments By Velden R.K.W. van der; Humburg M.
  3. Bad Bets: Excessive Risk Taking, Convex Incentives, and Performance By Rui de Figueiredo; Evan Rawley; Orie Shelef
  4. Personnel Economics essay: Issues in Human Capital Theory, training and earnings of workers By Josheski, Dushko
  5. Personality and field of study choice By Humburg M.
  6. Do employers trust workers too little? An experimental study of trust in the labour market By Stefano Caria; Paolo Falco
  7. Essential themes in Personnel economics By Josheski, Dushko
  8. Diaspora Networks, Knowledge Flows and Brain Drain By Ajay Agrawal
  9. Career Interruptions: A Neglected Aspect of a Neoclassical Model By Emin Gahramanov; Xueli Tang
  10. Human capital dynamics and the U.S. labor market By Nie, Jun; Fang, Lei
  11. Delegated Portfolio Management under Ambiguity Aversion By Annalisa Fabretti; Stefano Herzel; Mustafa C. Pinar
  13. Scale and Skill in Active Management By Lubos Pastor; Robert F. Stambaugh; Lucian A. Taylor

  1. By: Josheski, Dushko
    Abstract: In this paper the issue from personnel economics such as work intensity has been investigated. George Akerlof back in 1976 argued that the real life failed to correspond to the standard general equilibrium model set by Arrow-Debreu. In the real life information is neither complete nor it’s costless. In real life workers tend to work in harsh conditions, and put more efforts in order to receive better wages, also they have incentives to educate themselves more, as better educated employees are more productive. More productive means that they work faster as the rat’s race to the cheese and faster rats will get to the cheese first and get more cheese than slower rats. In reality workers do not want to share their output with slower workers. But it is because of bad norms that firms sets or taxes that government imposes that workers tend to work suboptimal i.e. work more than what is required in equilibrium, or work less than the equilibrium socially optimal required effort. The problem also arises when firms compare worker and pick ‘’average’’ worker, nowadays in OECD (rich) countries club, workers tend to get paid more and get spurious data on increased productivity and the measure average effort to be biased, so wage function will then be biased w=w (ē, t), wage is function of average effort and time needed to produce output. --
    Keywords: Rat race equilibrium,labour market regulation policies,job satisfaction,workers performance
    JEL: M50 M51 M52
    Date: 2014
  2. By: Velden R.K.W. van der; Humburg M. (GSBE)
    Abstract: In this study we elicit employers preferences for a variety of CV attributes and types of skills when recruiting university graduates. Using two discrete choice experiments, we simulate the two common steps of the graduate recruitment process 1 the selection of suitable candidates for job interviews based on CVs, and 2 the hiring of graduates based on observed skills. We show that in the first step, employers attach most value to CV attributes which signal a high stock of occupation-specific human capital indicating low training costs and short adjustment periods; attributes such as relevant work experience and a good match between the field of study and the job tasks. In line with the preferences in the first step, employers actual hiring decision is mostly influenced by graduates level of professional expertise and interpersonal skills. Other types of skills also play a role in the hiring decision but are less important, and can therefore not easily compensate for a lack of occupation-specific human capital and interpersonal skills.
    Keywords: Analysis of Education; Human Capital; Skills; Occupational Choice; Labor Productivity;
    JEL: J24 I21
    Date: 2014
  3. By: Rui de Figueiredo (Haas School of Business); Evan Rawley (Columbia Business School); Orie Shelef (Stanford Institute for Economic Policy Research)
    Abstract: Managerial incentives influence risk-taking as well as effort. Theoretical research has long considered risk-taking to be a potential side effect of incentive pay, but empirical analysis of risk-taking incentives has been more limited. This paper uses exogenous variation in incentives to examine how convex incentive schemes simultaneously influence performance and risk-taking. We study these questions in the context of the hedge fund industry in which the use of convex incentives is replete, given that most managers earn a combination of a base and an incentive fee if their performance exceeds a threshold. Consistent with other results in the literature, the paper first establishes that when managers fall below the threshold, above which they earn performance fees, risk-taking increases and performance drops. On average, risk-taking increases 50% and performance falls 2.3 percentage points when a hedge fund is below the incentive threshold.Having established these baseline results, the paper proceeds to more carefully examine the link between performance and risk-taking explicitly. First, given the empirical setting, we are able to separately identify the effort and risk-taking effects of being below the incentive threshold, and show that much of performance declines are due to excessive risk-taking rather than to reduced effort. Second, we show that risk-taking behavior is non-monotonic; managers who are significantly below the threshold reduce risk-taking relative to those who are relatively close. The importance of risk-taking to performance adds to the debate about the impact of incentives on behavior. Regardless of whether incentives are given or justified by concerns of moral hazard with respect to effort or risk-taking, or concerns of adverse selection or whether risk-aversion is an important consideration, risk-taking can have significant impacts. These results suggest that risk-taking, due to convex incentives, is not only inefficient-in the sense that risk-taking choices are dominated and lead to absolute performance declines.
    Date: 2014–01
  4. By: Josheski, Dushko
    Abstract: In this paper the issues from the personnel economics has been investigated. The issues such as training of workers from Becker’s human capital theory and their association with the workers’ productivity. In the second part of the paper the issue of grooming has been investigated in relation with earnings for which there exist and it is presented empirical evidence. In the equation as regressors are also present Mincerian variables: age, marital status and others. Also the four puzzles in the empirical literature about the determinants of earnings has been investigated. And how the empirical literature helps in resolving them. --
    Keywords: Personnel economics,training,earnings,grooming
    JEL: M50 M52 M53
    Date: 2014–01–30
  5. By: Humburg M. (GSBE)
    Abstract: Field of study choice has far-reaching implications for individuals enrolling in university. Field of study choice is strongly linked to the subject matter graduates will specialize in, the kind of work environment they will be working in, and the returns to their skills they can expect once they enter the workforce. This paper uses unique Dutch data which demonstrates that personality measured at age 14 can be linked to field of study choice at around age 19. It can be shown that the Big Five personality traits affect field of study choice. Moreover, while personality matters less than cognitive skills, such as math ability and verbal ability, for educational attainment, the influence of personality on field of study choice is comparable to that of cognitive skills. Sorting across fields of study on the basis of personality traits is in some respects similar for women and men, although substantial differences exist.
    Keywords: Analysis of Education; Human Capital; Skills; Occupational Choice; Labor Productivity;
    JEL: I21 J24
    Date: 2014
  6. By: Stefano Caria; Paolo Falco
    Abstract: We conduct a field experiment to investigate employers’ trust in workers. A sample of real entrepreneurs and workers from urban Ghana are respectively assigned to the roles of employers and employees. Employers have the option to hire (trust) an employee, who can in turn choose whether to exert effort (trustworthiness) in a real-effort task. By comparing employers’ expectations to workers’ revealed trustworthiness, we are able to detect potential misperceptions leading to sub-optimal hiring. We further devise two randomized treatments to test for the existence of expectation bias against specific worker categories and estimate the elasticity of employers’ beliefs with respect to new information. We find that employers significantly underestimate workers’ trustworthiness and this reduces their profit. Employees are aware of employers’ sub-optimal trust. Expectations are largely inelastic with respect to news and negative signals have a stronger (downward) effect than positive ones. Our results suggest that raising employers’ expectations would have a strong impact on hiring.
    Keywords: trust, trustworthiness, expectations, effort, hiring, microenterprise, learning, discrimination, experiment, African labour markets
    JEL: J23 J71 O15 C9
    Date: 2014
  7. By: Josheski, Dushko
    Abstract: In this paper are presented essential themes in the subject of personnel economics. In the first part analysis has been conducted on the impact of peer pressure on workplace behaviour. Then again models for compensation structures within firms, and their influence on the utility of work by employees. In the final section of the paper the productivity spillover effect has been analyzed, and the causes of existence of spillovers and their impact on workers’ productivity --
    Keywords: Personnel economics,compensation structures,peer pressure,spillover effect
    JEL: M00 M52 M55
    Date: 2014
  8. By: Ajay Agrawal (University of Toronto and NBER.)
    Abstract: I summarize key findings from the literature on how distance, relationships, and ethnic ties influence knowledge flows and describe a model that relates emigration and the diaspora to knowledge flows. I then recap a key study that reports evidence of a link from the diaspora and knowledge flows to home country manufacturing productivity. Next, I summarize the ways in which intellectual property protection may influence knowledge flow patterns through incentives (market for ideas) and disincentives (anticommons). Finally, I speculate on how diaspora knowledge flows and intellectual property may alleviate developing country low-productivity equilibria (“poverty traps”) caused by an underinvestment in specialized human capital.
    Date: 2014–01
  9. By: Emin Gahramanov; Xueli Tang
    Abstract: There is voluminous literature on the reasons behind career interruptions, ranging from maternity leave and organizational layoffs, to national service and human capital acquisition. We show that a standard, neoclassical model of intertemporal consumption/saving and labor/leisure choices without any friction can generate multiple career interruptions as a natural outcome of a consumption/leisure smoothing exercise performed by perfectly rational agents. Given the complexity of such a model, and to be consistent with traditions from the optimal control branch of mathematics, we use advances in numerical optimal control to solve a neoclassical problem.
    Keywords: Career interruptions; Life-cycle consumption and labor-leisure; Bounded control; Pseudospectral optimal control.
    JEL: J22 J26 D91 C02 C61
    Date: 2014–02–11
  10. By: Nie, Jun (Federal Reserve Bank of Kansas City); Fang, Lei
    Keywords: Unemployment; Unemployment Insurance (UI)Benefits; Matching Model; Human Capital; Labor Market
    JEL: E24 J08
    Date: 2014–01–01
  11. By: Annalisa Fabretti (University of Rome Tor Vergata); Stefano Herzel (University of Rome Tor Vergata); Mustafa C. Pinar (Bilkent University, Dept of Industrial Engineering)
    Abstract: We examine the problem of setting optimal incentives for a portfolio manager hired by an investor who wants to induce ambiguity-robust portfolio choices with respect to estimation errors in expected returns. We consider a one-period model with a set of risky assets (with multivariate normal returns) whose expected returns are estimated with uncertainty and a linear sharing rule between a risk-neutral investor and a risk averse portfolio manager. The manager accepts the contract if the compensation offered is at least as large as a minimum compensation he determines from his minimum acceptable utility level. Adopting a worst-case max-min approach we obtain in closed-form the optimal compensation in various cases where the investor and the manager, respectively adopt or relinquish an ambiguity averse attitude. We apply our result to compute the compensation fees for an investment strategy restricted by Socially Responsible rules. The application shows, for instance, that the additional premium requested by a manager for restricting the investment set should decrease when the aversion to ambiguity increases.
    Keywords: Delegated Portfolio Management, ambiguity, robust optimization
    Date: 2014–02–06
  12. By: Dorsett, Richard (National Institute of Economic and Social Research); Oswald, Andrew J (Department of Economics, University of Warwick)
    Abstract: Many politicians believe they can intervene in the economy to improve people’s lives. But can they? In a social experiment carried out in the United Kingdom, extensive in-work support was randomly assigned among 16,000 disadvantaged people. We follow a sub-sample of 3,500 single parents for 5 ensuing years. The results reveal a remarkable, and troubling, finding. Long after eligibility had ceased, the treated individuals had substantially lower psychological wellbeing, worried more about money, and were increasingly prone to debt. Thus helping people apparently hurt them. We discuss a behavioral framework consistent with our findings and reflect on implications for policy Key words: JEL classification: I31 ; D03 ; D60 ; H11 ; J38
    Date: 2014
  13. By: Lubos Pastor; Robert F. Stambaugh; Lucian A. Taylor
    Abstract: We empirically analyze the nature of returns to scale in active mutual fund management. We find strong evidence of decreasing returns at the industry level: As the size of the active mutual fund industry increases, a fund's ability to outperform passive benchmarks declines. At the fund level, all methods considered indicate decreasing returns, but estimates that avoid econometric biases are insignificant. We also find that the active management industry has become more skilled over time. This upward trend in skill coincides with industry growth, which precludes the skill improvement from boosting fund performance. Finally, we find that performance deteriorates over a typical fund's lifetime. This result can also be explained by industry-level decreasing returns to scale.
    JEL: G10 G23 J24
    Date: 2014–02

This nep-hrm issue is ©2014 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.