nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2014‒06‒02
nineteen papers chosen by
Tommaso Reggiani
University of Cologne

  1. Contracting With Synergies By Edmans, Alex; Goldstein, Itay; Zhu, John
  2. Private Notes on Gary Becker By Heckman, James J.
  3. Measuring Ratchet Effects within a Firm: Evidence from a Field Experiment varying Contractual Commitment By Charles Bellemare; Bruce Shearer
  4. IT and Management in America By Bloom, Nicholas; Brynjolfsson, Erik; Foster, Lucia; Jarmin, Ron; Patnaik, Megha; Saporta-Eksten, Itay; Van Reenen, John
  5. Socially gainful gender quotas By Stark, Oded; Hyll, Walter
  6. The New Empirical Economics of Management By Nicholas Bloom; Renata Lemos; Raffaella Sadun; Daniela Scur; John Van Reenen
  7. The Value of Corporate Culture By Guiso, Luigi; Sapienza, Paola; Zingales, Luigi
  8. Team Production in Competitive Labor Markets with Adverse Selection By Kosfeld, Michael; Von Siemens, Ferdinand
  9. The value of top-down communication for organizational performance By Leif Brandes; Donja Darai
  10. Time preferences, study effort, and academic performance By Tempelaar D.T.; Non J.A.
  11. Optimal Price-Setting in Pay for Performance Schemes in Health Care By Rud Kristensen, Søren; Siciliani, Luigi; Sutton, Matt
  12. Incentive Pay and Performance: Insider Econometrics in a Multi-Unit Firm By Bogaard, Hein; Svejnar, Jan
  13. Children’s skill formation in less developed countries – The impact of sports participation By Pawlowski, Tim; Schüttoff, Ute; Downward, Paul; Lechner, Michael
  14. Human Capital and Fertility in Chinese Clans Before Modern Growth By Shiue, Carol Hua
  15. The Ratchet Effect Re-examined: A Learning Perspective By Bhaskar, Venkataraman
  16. Trade Dynamics with Sector-Specific Human Capital By Guren, Adam; Hemous, David; Olsen, Morten
  17. Regulating Deferred Incentive Pay By Hoffmann, Florian; Inderst, Roman; Opp, Marcus
  18. Delegation and Dynamic Incentives By Shin, Dongsoo; Strausz, Roland
  19. Do Informal Referrals Lead to Better Matches? Evidence from a Firm's Employee Referral System By Brown, Meta; Setren, Elizabeth; Topa, Giorgio

  1. By: Edmans, Alex; Goldstein, Itay; Zhu, John
    Abstract: This paper studies multi-agent optimal contracting with cost synergies. We model synergies as the extent to which effort by one agent reduces his colleague's marginal cost of effort. An agent's pay and effort depend on the synergies he exerts, the synergies his colleagues exert on him and, surprisingly, the synergies his colleagues exert on each other. It may be optimal to "over-work" and "over-incentivize" a synergistic agent, due to the spillover effect on his colleagues. This result can rationalize the high pay differential between CEOs and divisional managers. An increase in the synergy between two particular agents can lead to a third agent being endogenously excluded from the team, even if his own synergy is unchanged. This result has implications for optimal team composition and firm boundaries.
    Keywords: complementarities; Contract theory; influence.; multiple agents; principal-agent problem; synergies; teams
    JEL: D86 J31 J33
    Date: 2013–11
  2. By: Heckman, James J. (University of Chicago)
    Abstract: This paper celebrates the life and contributions of Gary Becker (1930-2014).
    Keywords: human capital, human behavior, lifetime contributions, tribute
    JEL: B31 J24
    Date: 2014–05
  3. By: Charles Bellemare; Bruce Shearer
    Abstract: We present results from a field experiment designed to measure the importance of managerial commitment to a contract within a firm that pays its workers piece rates. In the tree planting industry the piece rate paid to workers is determined as a function of the difficulty of the terrain to be planted. During the experiment, workers began planting a terrain at a trial piece rate, but were told this rate would be revised upwards if, after a few work days, average productivity was below that observed on a similar (control) terrain on which the firm had committed to the contract. Our results suggest that worker productivity was 20% to 40% lower in the absence of commitment. The reduction was less pronounced when workers had less time to benefit from any subsequent increase in the piece rate. This provides support for models of worker turnover as a means of overcoming ratchet effects.
    Keywords: Ratchet effect, piece rates, incentive contracts, field experiments
    JEL: J33 M52 C93
    Date: 2014
  4. By: Bloom, Nicholas; Brynjolfsson, Erik; Foster, Lucia; Jarmin, Ron; Patnaik, Megha; Saporta-Eksten, Itay; Van Reenen, John
    Abstract: The Census Bureau recently conducted a survey of management practices in over 30,000 plants across the US, the first large-scale survey of management in America. Analyzing these data reveals several striking results. First, more structured management practices are tightly linked to higher levels of IT intensity in terms of a higher expenditure on IT and more on-line sales. Likewise, more structured management is strongly linked with superior performance: establishments adopting more structured practices for performance monitoring, target setting and incentives enjoy greater productivity and profitability, higher rates of innovation and faster employment growth. Second, there is a substantial dispersion of management practices across the establishments. We find that 18% of establishments have adopted at least 75% of these more structured management practices, while 27% of establishments adopted less than 50% of these. Third, more structured management practices are more likely to be found in establishments that export, who are larger (or are part of bigger firms), and have more educated employees. Establishments in the South and Midwest have more structured practices on average than those in the Northeast and West. Finally, we find adoption of structured management practices has increased between 2005 and 2010 for surviving establishments, particularly for those practices involving data collection and analysis.
    Keywords: IT; management; organization; productivity
    JEL: M2
    Date: 2014–03
  5. By: Stark, Oded; Hyll, Walter
    Abstract: We study the impact of gender quotas on the acquisition of human capital. We assume that individuals’ formation of human capital is influenced by the prospect of landing high-pay top positions, and that these positions are regulated by gender-specific quotas. In the absence of quotas, women consider their chances of getting top positions to be lower than men’s. The lure of top positions induces even men of relatively low ability to engage in human capital formation, whereas women of relatively high ability do not expect to get top positions and do not therefore engage in human capital formation. Gender quotas discourage men who are less efficient in forming human capital, and encourage women who are more efficient in forming human capital. We provide a condition under which the net result of the institution of gender quotas is an increase in human capital in the economy as a whole.
    Keywords: Gender quotas, Affirmative action, Human capital formation, Labor and Human Capital, D01, D21, J16, J24, J70, M51,
    Date: 2014–05
  6. By: Nicholas Bloom (Stanford); Renata Lemos; Raffaella Sadun (Harvard); Daniela Scur; John Van Reenen
    Abstract: Over the last decade the World Management Survey (WMS) has collected firmlevel management practices data across multiple sectors and countries. We developed the survey to try to explain the large and persistent TFP differences across firms and countries. This review paper discusses what has been learned empirically and theoretically from the WMS and other recent work on management practices. Our preliminary results suggest that about a quarter of cross-country and within-country TFP gaps can be accounted for by management practices. Management seems to matter both qualitatively and quantitatively. Competition, governance, human capital and informational frictions help account for the variation in management.
    Keywords: Keywords: management, organization, and productivity
    JEL: L2 M2 O14 O32 O33
    Date: 2014–04
  7. By: Guiso, Luigi; Sapienza, Paola; Zingales, Luigi
    Abstract: We study which dimensions of corporate culture are related to a firm’s performance and why. We find that proclaimed values appear irrelevant. Yet, when employees perceive top managers as trustworthy and ethical, firm’s performance is stronger. We then study how different governance structures impact the ability to sustain integrity as a corporate value. We find that publicly traded firms are less able to sustain it. Traditional measures of corporate governance do not seem to have much of an impact.
    Keywords: Corporate culture; Going Public; Integrity
    JEL: G30 Z1
    Date: 2013–11
  8. By: Kosfeld, Michael; Von Siemens, Ferdinand
    Abstract: Team production is a frequent feature of modern organizations. Combined with team incentives, team production can create externalities among workers, since their utility upon accepting a contract depends on their team’s performance and therefore on their colleagues’ productivity. We study the effects of such externalities in a competitive labor market if workers have private information on their productivity. We find that in any competitive equilibrium there must be Pareto-efficient separation of workers according to their productivity. We further find that externalities facilitate equilibrium existence, where under a particular condition on workers’ indifference curves even arbitrarily small externalities guarantee equilibrium existence.
    Keywords: adverse selection; competition; externality; team production
    JEL: D24 D82 J30 L22
    Date: 2014–02
  9. By: Leif Brandes; Donja Darai
    Abstract: We design a laboratory experiment to identify causal performance effects of top-down communication between managers and their subordinates. Our focus lies on communication that resolves uncertainty about the work environment but does not provide task-specific knowledge. Recent articles in the business press report a lack of such communication in real-world organizations and associate it with reduced organiza- tional performance. Our results confirm this observation. We find that top-down communication is a profitable way for managers to increase employee performance in the presence of uncertainty. Specifically, we show that non-communication is the worst option for managers. However, 50 percent of our experimental managers use top-down communication too restrictively. Overall, managers forego 30 percent of their potential profits through non-communication. We show that organizations can overcome this problem by adopting automated information procedures, which are equally effective.
    Keywords: Communication procedures, non-instrumental-information, employee motivation
    JEL: C92 D23 D83 M54
    Date: 2014–05
  10. By: Tempelaar D.T.; Non J.A. (GSBE)
    Abstract: We analyze the relation between time preferences, study effort, and academic performance among first-year Business and Economics students. Time preferences are measured by stated preferences for an immediate payment over larger delayed payments. Data on study efforts are derived from an electronic learning environment, which records the amount of time students are logged in and the fraction of exercises completed. Our third measure of study effort is participation in an on-line summer course. We find that impatient students show weaker performance, but the consequences are relatively mild. Impatient students obtain lower grades and fail first sit exams more often, but they do not obtain significantly fewer study credits, nor are they more likely to drop out as a result of obtaining fewer study credits than required. We find a weak negative relationship between impatience and study effort. Differences in study effort therefore cannot explain impatient students lower academic performance.
    Keywords: Behavioral Economics: Underlying Principles; Intertemporal Choice and Growth: General; Analysis of Education;
    JEL: D03 D90 I21
    Date: 2014
  11. By: Rud Kristensen, Søren; Siciliani, Luigi; Sutton, Matt
    Abstract: The increased availability of process measures implies that quality of care is in some areas de facto verifiable. Optimal price-setting for verifiable quality is well-described in the incentive-design literature. We seek to narrow the large gap between actual price-setting behaviour in Pay-For-Performance schemes and the incentive literature. We present a model for setting prices for process measures of quality and show that optimal prices should reflect the marginal benefit of health gains, providers’ altruism and the opportunity cost of public funds. We derive optimal prices for processes incentivised in the Best Practice Tariffs for emergency stroke care in the English National Health Service. Based on published estimates, we compare these to the prices set by the English Department of Health. We find that actual tariffs were lower than optimal, relied on an implausibly high level of altruism, or implied a lower social value of health gains than previously used.
    Keywords: optimal price-setting; Pay for Performance; provider behaviour
    JEL: D82 I11 I18 L51
    Date: 2014–03
  12. By: Bogaard, Hein; Svejnar, Jan
    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: Banking; Central and Eastern Europe; Endogeneity of HRM Policies; Foreign Ownership; Incentives; Insider Econometrics
    JEL: F23 G21 M52
    Date: 2014–01
  13. By: Pawlowski, Tim; Schüttoff, Ute; Downward, Paul; Lechner, Michael
    Abstract: Previous research suggests that sports club participation of children in developed countries positively influences the children’s well-being, health as well as human and social capital. We use panel data of a cohort of 1,579 children in Ethiopia and Peru to test these relationships in less developed countries where access to work might be only to manual labor, access to education is more limited and daily-survival activities demand high physical energy. By exploiting the panel structure of our data in a specific way, we suggest that the effects flexibly estimated by propensity score matching are close to having a causal interpretation. The findings suggest that the impact of programs, such as those provided in sport, can have positive developmental impacts for children, for example, on human and social capital, but that the results vary by context.
    Keywords: Social capital, Human capital, Well-being, Health, Group participation, Sports
    JEL: C14 D12 I21 J24
    Date: 2014–05
  14. By: Shiue, Carol Hua
    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.
    Keywords: Demographic transition; Economic history of China; Fertility; Human capital
    JEL: J11 O15
    Date: 2013–11
  15. By: Bhaskar, Venkataraman
    Abstract: We study dynamic moral hazard where principal and agent are symmetrically uncertain about job difficulty. Since effort is unobserved, shirking leads the principal to believe that the job is hard, increasing the agent's continuation value. So deterring shirking requires steeper incentives, which induce the agent to over-work today, since he can quit if the principal believes that the job is easy. With continuous effort choices, no interior effort is implementable in the first period. The agent's continuation value function is non-differentiable and convex, since the principal makes the agent indifferent between his discrete (participation) choices in the second period. The problem can be solved if the agent's participation decision is made continuous, or if there are long-term commitments, and we provide conditions for the first order approach to work. However, the impossibility result recurs in other agency models that combine discrete and continuous choices.
    Keywords: envelope theorem; first-order approach; learning; moral hazard; ratchet effect
    JEL: D83 D86
    Date: 2014–05
  16. By: Guren, Adam; Hemous, David; Olsen, Morten
    Abstract: This paper develops a dynamic Heckscher Ohlin Samuelson model with sector-specific human capital and overlapping generations to characterize the dynamics and welfare implications of gradual labor market adjustment to trade. Our model is tractable enough to yield sharp analytic results, that complement and clarify an emerging empirical literature on labor market adjustment to trade. Existing generations that have accumulated specific human capital in one sector can switch sectors when the economy is hit by a trade shock. Nonetheless, the shock induces few workers to switch, generating a protracted adjustment that operates largely through the entry of new generations. This results in wages being tied to the sector of employment in the short-run but to the skill type in the long-run. Relative to a world with general human capital, welfare is improved for the skill group whose type-intensive sector shrinks. We extend the model to include physical capital and show that the transition is longer when capital is mobile. We also introduce nonpecuniary sector preferences and show that larger gross flows are associated with a longer transition.
    Keywords: sector-specific human capital; trade shock; transitional dynamics; worker mobility
    JEL: E24 F11 F16 J24
    Date: 2014–02
  17. By: Hoffmann, Florian; Inderst, Roman; Opp, Marcus
    Abstract: Our paper examines the effect of recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses for compensation contracts in the financial sector. We study a multi-task setting in which a bank employee, the agent, privately chooses (deal or customer) acquisition effort and diligence, which stochastically reduces the occurrence of negative events over time (such as loan defaults or customer cancellations). The key ingredient of the compensation contract is the endogenous timing of a long-term bonus that trades off the cost and benefit of delay resulting from agent impatience and the informational gain, respectively. Our main finding is that government interference with this privately optimal choice may
    Keywords: Compensation design; Financial regulation; Principal-agent models
    JEL: D86 G21 G28
    Date: 2014–03
  18. By: Shin, Dongsoo; Strausz, Roland
    Abstract: Using an agency model, we show how delegation, by generating additional private information, improves dynamic incentives under limited commitment. It circumvents ratchet effects and facilitates the revelation of persistent private information through two effects: a play-hardball effect, which mitigates an efficient agent's ratchet incentive, and a carrot effect which reduces an inefficient agent's take-the-money-and-run incentive. Although delegation entails a loss of control, it is optimal when uncertainty about operational efficiency is large. Moreover, delegation is more effective with production complementarity. We also consider different modes of commitment to yield insights into optimal organizational boundaries.
    Keywords: Agency; Delegation; Dynamic Incentives; Limited Commitment
    JEL: D82 D86 L22
    Date: 2014–04
  19. By: Brown, Meta (Federal Reserve Bank of New York); Setren, Elizabeth (MIT); Topa, Giorgio (Federal Reserve Bank of New York)
    Abstract: Using a new firm-level dataset that includes explicit information on referrals by current employees, we investigate the hiring process and the relationships among referrals, match quality, wage trajectories and turnover for a single U.S. corporation, and test various predictions of theoretical models of labor market referrals. We find that referred candidates are more likely to be hired; experience an initial wage advantage which dissipates over time; and have longer tenure in the firm. Further, the variances of the referred and non-referred wage distributions converge over time. The observed referral effects appear to be stronger at lower skill levels. The data also permit analysis of the role of referrer-referee pair characteristics.
    Keywords: referrals, human resources, turnover, wage trajectory
    JEL: J30 J63 J64
    Date: 2014–05

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