nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2015‒03‒05
eleven papers chosen by
Tommaso Reggiani
Universität zu Köln

  1. Revisiting the Tradeoff between Risk and Incentives: The Shocking Effect of Random Shocks By Brice Corgnet; Roberto Hernán-González
  2. Teachers’ Pay for Performance in the Long-Run: Effects on Students’ Educational and Labor Market Outcomes in Adulthood By Victor Lavy
  3. Exploration for Human Capital: Evidence from the MBA Labor Market By Kuhnen, Camelia M.; Oyer, Paul
  4. Homogenous Contracts for Heterogeneous Agents: Aligning Salesforce Composition and Compensation By Daljord, Oystein; Misra, Sanjog; Nair, Harikesh S.
  5. Dynamic Contracting with Limited Commitment and the Ratchet Effect By Dino Gerardi; Lucas Maestri
  6. Comparing entrepreneurs, organizational employees, and the double profile: Satisfaction with work-family balance, resources and demands By Katherina Kuschel
  7. At work but earning less : trends in decent pay and minimum wages for young people By Grimshaw, Damian
  8. Motivating Consummate Effort By Kreps, David M.
  9. Empirical Analysis of the effect of Human Capital Generation on Economic Growth in India - a Panel Data approach By Debgupta, Sanchari
  10. Sectoral differences in managers’ compensation: insights from a matching model By Emanuela Ciapanna; Marco Taboga; Eliana Viviano
  11. 16th ALMALAUREA REPORT ON ITALIAN UNIVERSITY GRADUATES’ PROFILE Opportunities and Challenges for Higher Education in Italy By Andrea Cammelli; Giancarlo Gasperoni

  1. By: Brice Corgnet (Chapman University); Roberto Hernán-González (University of Nottingham)
    Abstract: Despite its central role in the theory of incentives, empirical evidence of a tradeoff between risk and incentives remains scarce. We reexamine this empirical puzzle in a controlled laboratory environment so as to isolate possible confounding factors encountered in the field. In line with the principal-agent model, we find that principals increase fixed pay while lowering performance pay when the relationship between effort and output is noisier. Unexpectedly, agents produce substantially more in the noisy environment than in the baseline despite lesser pay for performance. We show that this result can be accounted for by introducing agents’ loss aversion in the principal-agent model. Our findings call for an extension of standard agency models and for a reassessment of apparently inefficient management practices.
    Keywords: Principal-agent models, incentive theory, loss aversion, laboratory experiments
    JEL: C92 D23 D86 M54
    Date: 2015
  2. By: Victor Lavy
    Abstract: The long term effect of teachers’ pay for performance is of particular interest, as critics of these schemes claim that they encourage teaching to the test or orchestrated cheating by teachers and schools. In this paper, I address these concerns by examining the effect of teachers’ pay for performance on long term human capital outcomes, in particular attainment and quality of higher education, and labor market outcomes at adulthood, in particular employment and earnings. I base this study on an experiment conducted a decade and a half ago in Israel and present evidence that the pay for performance scheme increased a wide range of long run human capital measures. Treated students are 4.3 percentage points more likely to enroll in a university and to complete an additional 0.17 years of university schooling, a 60 percent increase relative to the control group mean. These gains are mediated by overall improvements in the high school matriculation outcomes due to the teachers’ intervention at 12th grade. The pay scheme led also to a significant 7 percent increase in annual earnings, to a 2 percent reduction in claims for unemployment benefits, and a 1 percent decline in eligibility for the government disability payment.
    JEL: J24 J3
    Date: 2015–02
  3. By: Kuhnen, Camelia M. (University of NC); Oyer, Paul (Stanford University)
    Abstract: We empirically investigate the effect of uncertainty on corporate hiring. Using novel data from the labor market for MBA graduates, we show that uncertainty regarding how well job candidates fit with a firm's industry hinders hiring, and that firms value probationary work arrangements that provide the option to learn more about potential full-time employees. The detrimental effect of uncertainty on hiring is more pronounced when firms face greater firing and replacement costs, and when they face less direct competition from other similar firms. These results suggest that firms faced with uncertainty use similar considerations when making hiring decisions as when making decisions regarding investment in physical capital.
    JEL: G31 J44 M51
    Date: 2014–03
  4. By: Daljord, Oystein (Stanford University); Misra, Sanjog (UCLA); Nair, Harikesh S. (Stanford University)
    Abstract: Observed contracts in the real-world are often very simple, partly reflecting the constraints faced by contracting firms in making the contracts more complex. We focus on one such rigidity, the constraints faced by firms in fine-tuning contracts to the full distribution of heterogeneity of its employees. We explore the implication of these restrictions for the provision of incentives within the firm. Our application is to salesforce compensation, in which a firm maintains a salesforce to market its products. Consistent with ubiquitous real-world business practice, we assume the firm is restricted to fully or partially set uniform commissions across its agent pool. We show this implies an interaction between the composition of agent types in the contract and the compensation policy used to motivate them, leading to a "contractual externality" in the firm and generating gains to sorting. This paper explains how this contractual externality arises, discusses a practical approach to endogenize agents and incentives at a firm in its presence, and presents an empirical application to salesforce compensation contracts at a US Fortune 500 company that explores these considerations and assesses the gains from a salesforce architecture that sorts agents into divisions to balance firm-wide incentives. Empirically, we find the restriction to homogenous plans significantly reduces the payoffs of the firm relative to a fully heterogeneous plan when it is unable to optimize the composition of its agents. However, the firm's payoffs come very close to that of the fully heterogeneous plan when it can optimize both composition and compensation. Thus, in our empirical setting, the ability to choose agents mitigates partially the loss in incentives from the restriction to uniform contracts. We conjecture this may hold more broadly.
    Date: 2014–01
  5. By: Dino Gerardi; Lucas Maestri
    Abstract: We study dynamic contracting with adverse selection and limited commitment. A firm (the principal) and a worker (the agent) interact for potentially infinitely many periods. The worker is privately informed about his productivity and the firm can only commit to short-term contracts. The ratchet effect is in place since the firm has the incentive to change the terms of trade and offer more demanding contracts when it learns that the worker is highly productive. As the parties become arbitrarily patient, the equilibrium allocation takes one of two forms. If the prior probability of the worker being productive is low, the firm offers a pooling contract and no information is ever revealed. In contrast, if this prior probability is high, the firm fires the unproductive worker at the very beginning of the relationship.
    Keywords: Dynamic Contracting; Limited Commitment; Ratchet Effect.
    JEL: D80 D82 D86
    Date: 2015
  6. By: Katherina Kuschel (School of Business and Economics, Universidad del Desarrollo)
    Abstract: This study wants to question the increasingly “popular” notion that self-employment represents a solution to conflict between work and family by comparing the levels of satisfaction with work-family balance and subjective well-being among three samples: organizational employees, entrepreneurs, and the double profile. Based in the job demands-resources framework, this study compares job demands, job resources, and key personal resources among the three groups of workers. Results show that entrepreneurs experience higher levels of satisfaction with work-family balance and subjective well-being, and enjoy greater job resources and key personal resources than organizational employees. Particularly, job autonomy, work-family climate and job security (withdrawal chances) were the greater differences. Interestingly, the double profile share more similarities with the employees group than with the entrepreneurs.
    Keywords: entrepreneurs; satisfaction with work family balance; subjective well-being; job resources; job demands
    JEL: M12 M14 L26
    Date: 2014–12
  7. By: Grimshaw, Damian
    Abstract: The paper “At work but earning less: Trends in decent pay and minimum wages for young people” reviews existing literature and analyses recent data on young workers’ earnings. The findings of the paper point to the increase over time of the youth wage discount, i.e. the wage gap between adult and young workers.
    Keywords: youth employment, young worker, minimum wage, low wages, trend, emploi des jeunes, jeune travailleur, salaire minimum, bas salaire, tendance, empleo de jóvenes, joven trabajador, salario mínimo, salario bajo, tendencia
    Date: 2014
  8. By: Kreps, David M. (Stanford University)
    Date: 2014–02
  9. By: Debgupta, Sanchari
    Abstract: Last decade of 20th century faced a strong quest for the determinants of the rate of long run economic growth. Post World War II, human capital has emerged as an important and inevitable factor apart from the other general factors that affect the rate of growth. According to economists and existing theories of growth, a nation that invests in human capital generation should contribute positively in the process of economic growth. Human capital embodies qualities that are inherited as well as acquired through education and training. The returns to investment in human capital not only help individuals to enjoy personal growth but in addition affect the growth of the nation as an aggregate. This paper observes the relationship that prevails between human capital and economic growth in the Indian economy based on NSSO unit level household data. With the help of panel data econometric analysis, the study finds out that human capital generation as an aggregate of average general educational level, literacy rate, per capita educational expenditure and primary enrolment rate, positively impact the per capita net state domestic product, taken as a representative for economic growth.
    Keywords: Human Capital, Economic Growth, Panel Data Econometrics
    JEL: C12 C13 C23
    Date: 2015–02–28
  10. By: Emanuela Ciapanna (Bank of Italy); Marco Taboga (Bank of Italy); Eliana Viviano (Bank of Italy)
    Abstract: We propose a structural model of two-sided matching and a semi-parametric procedure for its estimation that allow to analyze determinants of managers’ compensation such as firm’s and manager’s quality, production technology, bargaining power and inter-temporal preferences. We use the estimated model to study the stylized fact that managers in the financial sector receive higher compensation than their peers in other sectors. Our results suggest that a predominant portion of this wage gap is explained by differences in production technology, while differences in bargaining power, preferences and quality have a minor impact and are seldom statistically significant.
    Keywords: managers’ compensation, job matching
    JEL: C73 D31 J63 J64
    Date: 2015–01
  11. By: Andrea Cammelli (AlmaLaurea); Giancarlo Gasperoni
    Abstract: The 16th ALMALAUREA Report on Italian University Graduates’ Profile was presented at the Conference in Pollenzo-Bra – hosted by the University of Gastronomic Sciences. The data on which this Report is based refers to 64 universities (out of the 65 which are part of the consortium) which have been part of ALMALAUREA for at least one year, and almost 230 thousand graduates in 2013 – which is almost 80% of students who graduated from Italian universities. This Report devotes particular attention to a number of issues which characterize the debate on higher education. These include: graduates’ features at the beginning of their university studies; working students and class attendance; traineeships; study experiences abroad; degree completion times; the significance of exam and graduation grades; graduates’ evaluation of their university experience; student support services; student living conditions in university towns; study and employment prospects after graduation; adults at university; graduates with foreign citizenship. An overview of the outcomes achieved by graduates in 2013 confirms – despite the country’s negative economic and social context – an overall promising situation. Indeed, more students have completed their studies within the prescribed time frame, class attendance has improved, students have carried out more traineeships and internships and continue to take advantage of opportunities to study abroad.
    Keywords: graduates, university system, human capital.
    Date: 2015–03

This nep-hrm issue is ©2015 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.