nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2015‒03‒22
thirteen papers chosen by
Tommaso Reggiani
Universität zu Köln

  1. Gender and Dynamic Agency: Theory and Evidence on the Compensation of Top Executives By Albanesi, Stefania; Olivetti, Claudia; Prados, Maria José
  2. Communication and Trust in Principal-Team Relationships: Experimental Evidence By Marco Kleine; Sebastian Kube
  3. Legalization and Human Capital Accumulation By Nieves Valdes; Fabio Mendez; Facundo Sepulveda
  4. Endogenous favouritism with status incentives: A model of optimum inefficiency By Dey, Oindrila; Banerjee, Swapnendu
  5. CEO Duality and Firm Performance Revisited By Mohammadi, Ali; Basir, Nada O.; Lööf, Hans
  6. Learning, Occupational Choice and Human Capital Accumulation: A Multi-Armed Bandit Approach By Theodore Papageorgiou; Rafael Lopes de Melo
  7. Tenure-Track Contract Helps Self-Selection By Popov, Sergey V
  8. Training Programs, Skills, and Human Capital: A Life-Cycle Approach By Gueorgui Kambourov; Florian Hoffmann
  9. Training access, reciprocity, and expected retirement age By Montizaan R.M.; Grip A. de; Fouarge D.
  10. Growth and Human Capital: A Network Approach By Cavalcanti, Tiago; Giannitsarou, Chryssi
  11. Supervision and Project Performance: A Principal-Agent Approach By Lisa Chauvet; Paul Collier; Andreas Fuster
  12. Intergovernmental (Dis)incentives, Free-Riding, Teacher Salaries and Teacher Pensions By Maria D. Fitzpatrick
  13. Does it Pay to Work for Free? Negative Selection and the Wage Returns to Volunteer Experience By Guido Cozzi; Noemi Mantovan; Robert M. Sauer

  1. By: Albanesi, Stefania; Olivetti, Claudia; Prados, Maria José
    Abstract: We document three new facts about gender differences in executive compensation. First, female executives receive lower share of incentive pay in total compensation relative to males. This difference accounts for 93% of the gender gap in total pay. Second, the compensation of female executives displays lower pay-performance sensitivity. A $1 million dollar increase in firm value generates a $17,150 increase in firm specific wealth for male executives and a $1,670 increase for females. Third, female executives' compensation is more sensitive to bad firm performance and less sensitive to good firm performance. We find no link between firm performance and the gender of top executives. We discuss evidence on differences in preferences and the cost of managerial effort by gender and examine the resulting predictions for the structure of compensation. We consider two paradigms for the pay-setting process, the efficient contracting model and the ``managerial power'' or skimming view. The efficient contracting model can explain the first two facts. Only the skimming view is consistent with the third fact. This suggests that the gender differentials in executive compensation may be inefficient.
    Keywords: gender differences in executive pay; incentive pay; pay-performance sensitivity
    JEL: G3 J31 J33
    Date: 2015–03
  2. By: Marco Kleine (Max Planck Institute for Innovation and Competition, Munich); Sebastian Kube (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: We study how upward communication – from workers to managers – about individual efforts affects the effectiveness of gift exchange as a contract-enforcement device for work teams. Our findings suggest that the use of such self-assessments can be detrimental to workers’ performance. In the controlled environment of a laboratory gift-exchange experiment, our workers regularly overstate their own contribution to the joint team output. Misreporting seems to spread distrust within the team of workers, as well as between managers and workers. This manifests itself in managers being less generous with workers’ payments, and in workers being more sensitive to the perceived kindness of their relative wage payments. By varying the source and degree of information about individual efforts between treatments, we see that precise knowledge about workers’ actual contributions to the team output is beneficial for the success of gift-exchange relationships. Yet, workers’ self-assessments can be a problematic tool to gather this information.
    JEL: J33 C92 M52
    Date: 2015–03
  3. By: Nieves Valdes (Escuela de Gobierno, Universidad Adolfo Ibáñez); Fabio Mendez; Facundo Sepulveda
    Date: 2015–01
  4. By: Dey, Oindrila; Banerjee, Swapnendu
    Abstract: The paper identifies conditions under which ‘inefficient’ favouritism emerges as an optimal outcome even when the principal do not exhibit ex-ante preferential bias for any particular agent. We characterize how the optimal incentive scheme is influenced in the presence of status incentives. Using a moral hazard framework with limited liability in a multi-agent framework, it is shown that in presence of higher valuation for status incentive inefficient favouritism is more likely to dominate over fairness. Moreover, inefficient favouritism emerges as the optimal outcome when revenue of the firm is sufficient low.
    Keywords: Favouritism, status-incentives, principal-agent, moral hazard, optimal contract
    JEL: D86 L14 L20
    Date: 2015–03–13
  5. By: Mohammadi, Ali (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Basir, Nada O. (Faculty of Business and IT, University of Ontario Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper replicates and extends the empirical work of Boyd’s 1995 article: CEO Duality and Firm Performance: A Contingency Model. We retest Boyd’s hypotheses using a database of over 11,000 Swedish firms from the year 2005 to 2009. Similar to Boyd, we find that CEO duality is positively correlated to firm performance and the effect varies across environmental dimensions of munificence, dynamism and complexity. Using quantile regression, we also show that the positive impact of CEO duality increases by firm performance. Our findings hold after we control for potential endogeneity concerns.
    Keywords: CEO duality; boards of directors; agency theory; stewardship theory; replication
    JEL: G30 G34 L25
    Date: 2015–03–13
  6. By: Theodore Papageorgiou (Penn State University); Rafael Lopes de Melo (University of Chicago)
    Abstract: Displaced workers who are forced to switch occupations are found to experience larger earning losses than those who don't (Kambourov and Manovskii (2009)). Occupational heterogeneity may imply that these losses are not necessarily the same across occupations. In addition, if human capital is more important for workers who are better suited for a particular occupation, then any misallocation of workers across occupations will be more pronounced in occupations where human capital is particularly important. For instance, if human capital interacts with how well a worker matches in each occupation and human capital is more important for cooks than truck drivers, then having the wrong worker work as a cook is more costly than having the wrong worker work as a truck driver. <P> The goal of this project is to investigate the importance of occupation-specific human capital across different occupations. A recent literature has argued that occupation-specific human capital is a key component in wage determination. That same literature however typically assumes that the rate of human capital accumulation does not differ across occupations. <P> We introduce a model where workers, while employed in an occupation accumulate specific human capital and also learn about the underlying quality of their occupational match. Our setup allows for occupational heterogeneity: the rates of human capital accumulation, as well as the speed of learning are allowed to differ across occupations. Human capital can also interact with match quality. In addition, workers accumulate general human capital. When making an occupational choice, the worker takes into account his current wage, the occupation-specific human capital that will be accumulated, as well as the information obtained regarding the underlying quality of the occupational match. His state space includes his beliefs about his match quality in each occupation, as well as his human capital level at each occupation. Therefore for more than a handful occupations, the problem quickly becomes very hard to solve computationally. Through the use of Gittins indices however, the problem becomes tractable, even in the case of many occupations. <P> As in the data, our setup predicts that wages are an increasing function of tenure. In particular, wages increase for two reasons: first, workers accumulate human capital and second, selection implies that only the workers who are best matched remain in an occupation. Occupational switching however, which is driven by workers learning that they're not well-matched in an occupation, is a decreasing function of tenure. The rate of decline of occupational switching with tenure identifies the speed at which workers learn about their match quality. Given that estimate, we can separately identify the rate of human capital accumulation in each occupation, by looking at the part the wage increase that is not explain by selection. In addition, we also look at the increase with tenure of the within-occupation cross-sectional wage variance. <P> Our setup follows a large empirical literature that attempts to distinguish between human capital and selection, starting with Abraham and Farber (1987), Altonji and Shakotko (1987), Topel (1990) and later Altonji and Williams (2005) who examine the importance of firm tenure on wages. More recently Kambourov and Manovskii (2009), Gathmann and Schönberg (2010) and Pavan (2011) consider the importance of occupation/industry choice in wage formation. Finally, understanding the importance of human capital and learning in each occupation also contributes to the displacement loss literature (Jacobson et al. (1993)).
    Date: 2014
  7. By: Popov, Sergey V
    Abstract: Tenure contract is criticized for curbing the incentives for spending effort after obtaining the tenured status. Yet, the best faculty seems to work on a tenure contract, and schools who employ the best faculty seem to prefer to offer a tenure-track contract to their new hires. I argue that tenure-track contracts are by construction more attractive to more able freshly minted PhDs, and therefore the observed sorting is rationalizable.
    Keywords: tenure, academia, job market, self-selection
    JEL: I23 J4
    Date: 2015–03–19
  8. By: Gueorgui Kambourov (University of Toronto); Florian Hoffmann (University of British Columbia)
    Abstract: We argue that standard models with one-dimensional skills and human capital cannot explain these distinct patterns. Instead we develop a model in which human capital is occupation-specific, but in which non-routine occupations require upfront occupation-specific human capital built-up. Furthermore, accumulation of human capital in non-routine occupations requires different skills than in routine occupations. Training programs and their government-sponsored general educational component help building human capital up-front and developing skills for processing complex task. We show that our model can explain the rich set of facts about labor market dynamics found in the data.
    Date: 2014
  9. By: Montizaan R.M.; Grip A. de; Fouarge D. (ROA)
    Abstract: This paper investigates whether employers can induce employees to postpone retirement by offering access to training courses that maintain job proficiency. We use unique, matched employeremployee surveys for the Dutch public sector, which include detailed information on a wide range of HR practices applied in the organization, as well as the expected retirement age of its employees. We find that training policies, as reported by employers, are significantly positively related to employee expected retirement age, irrespective of whether employees actually participate in training. We show that this positive relationship is driven by employees positive reciprocal inclinations, indicating that provision of training may serve as a tool to motivate older employees in their job and consequently to retire later. The provision of training access may therefore complement existing pension reforms in many industrialized countries that aim to increase labor-force participation of older workers. Robustness analyses indicate that the relationship between offering training access and expected age of retirement is unlikely to be driven by reverse causality, self-selection, or the presence of other organizational characteristics.
    Keywords: Human Capital; Skills; Occupational Choice; Labor Productivity; Wage Level and Structure; Wage Differentials;
    JEL: J24 J31
    Date: 2015
  10. By: Cavalcanti, Tiago; Giannitsarou, Chryssi
    Abstract: We study the interactions and dynamics of human capital, growth and inequality by explicitly embedding networks into a standard endogenous growth model with overlapping generations. The human capital of a household depends on investment in education and on average human capital of the household's network neighborhood. Network structure is crucial for both the long run outcomes and the transition of otherwise identical economies. Network cohesion above a certain threshold eliminates differences across households and leads to long run equality, while below the threshold, inequality is high and persists more often. During transition, (i) high overall growth is achieved when the network has high degree centralization and the most degree central node has high initial human capital and (ii) high individual household growth is achieved when the household has low human capital relative to its neighborhood and is located in a neighborhood that has high average human capital relative to the whole economy.
    Keywords: growth; human capital; inequality; local externality; networks
    JEL: D62 D85 E24 O40
    Date: 2015–03
  11. By: Lisa Chauvet (IRD, UMR DIAL, PSL, Université Paris-Dauphine); Paul Collier (Blavatnik School of Government, Oxford, International Growth Centre); Andreas Fuster (Federal Reserve Bank of New York)
    Abstract: This paper extends and applies principal-agent theory to the performance of donor projects. There is variation in the degree of divergence between the interests of the donor (the principal) and the recipient government (the agent). Further, the effort expended on observation of the agent is a control variable. We show that in a wide range of circumstances an implication of principal-agent theory is that the principal should put greater effort into observation the wider is the divergence of interest with the agent. We then test this prediction using data on World Bank project performance. We measure the degree of divergence between donor and recipient interests, as perceived by the donor, through a donor classification system of recipient governments. Consistent with the theory, we find that donor supervision of projects is significantly more effective in improving project performance where interests are widely divergent. However, donors do not put more effort into the supervision of projects in such cases.________________________________ Cet article étend et applique la théorie Principal-Agent à la performance des projets d’aide. Les intérêts du donneur (le principal) et du gouvernement receveur (l’agent) peuvent différer de manière importante. Dans le modèle, l’effort mis en oeuvre pour observer l’agent est une variable de contrôle. Nous montrons qu’une implication du modèle principal-agent est que le principal devrait faire d’autant plus d’effort pour observer l’agent quand ses intérêts divergent de ceux de l’agent. Nous testons ensuite ces prédictions en utilisant les données de performance des projets d’aide de la Banque mondiale. Nous mesurons le degré de divergence entre les intérêts du donneur et du receveur, telle que perçue par le donneur, par la classification des receveurs comme ‘partenariats difficiles’. Comme prédit par le modèle, nous trouvons que la supervision des projets d’aide par le donneur permet d’autant plus d’assurer le succès des projets que les intérêts du donneur et du receveur diffèrent. Toutefois, le donneur ne semble pas faire plus d’effort de supervision dans les partenariats difficiles.
    Keywords: Principal-Agent theory, Aid projects, Supervision, Difficult partnerships.
    JEL: D86 F35 O19 O22
    Date: 2015–02
  12. By: Maria D. Fitzpatrick (Cornell University)
    Abstract: In this paper, I document evidence that intergovernmental incentives inherent in public sector defined benefit pension systems distort the amount and timing of income for public school teachers. This intergovernmental incentive stems from the fact that, in many states, local school districts are responsible for setting the compensation that determines the size of pensions, but are not required to make contributions to cover the resulting pension fund liabilities. I use the introduction of a policy that required experience-rating on compensation increases above a certain limit in a differences-in-differences framework to identify whether districts are willing to pay the full costs of their compensation promises. In response to the policy, the size and distribution of compensation changed significantly. On average, public school employees received lower wages largely through the removal of retirement bonuses. However, the design of the policy led some districts to increase compensation, rendering the policy less effective that it might have otherwise been.
    Keywords: Intergovernmental Incentives, Teacher Compensation, Teacher Retirement
    JEL: H75 H72 H77 J26 I21 I28
    Date: 2014–07
  13. By: Guido Cozzi; Noemi Mantovan; Robert M. Sauer
    Abstract: This paper offers the first instrumental variables estimates of the wage returns to volunteer experience. The returns are substantial and differ considerably by gender. The results imply that the unequal valuation of volunteer experience by gender is more important in explaining the gender earnings gap than is the unequal valuation of part-time paid work experience. The results also indicate negative selection into unpaid work. In a simple model of optimal volunteering, negative selection implies that a lower cost of volunteering would produce both an expanded and higher-skilled pool of volunteers, and greater societal benefits from volunteer work.
    Keywords: Volunteering, Unpaid Work, Gender Differences, Instrumental Variables, Rainfall, Negative Selection
    JEL: C26 D64 H41 J16 J31 J71
    Date: 2015

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.