nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2015‒05‒09
fifteen papers chosen by
Tommaso Reggiani
Universität zu Köln

  1. Executive Compensation: A Modern Primer By Edmans, Alex; Gabaix, Xavier
  2. Entry into working life: Spatial mobility and the job match quality of higher-educated graduates By Venhorst V.; Cörvers F.
  3. Risk Choices and Compensation Design By Carey, Mark S.; Sun, Bo
  4. New ways of working and work engagement By Baudewijns C.; Gerards R.; Grip A. de
  5. Genetic Distance and Cognitive Human Capital: A Cross-National Investigation By Oasis Kodila-Tedika; Simplice Asongu
  6. Has Performance Pay Increased Wage Inequality in Britain? By Bryan, Mark L.; Bryson, Alex
  7. Reduction of Working Time in Austria. A Mixed Methods Study Relating a New Work Time Policy to Employee Preferences By Stefanie Gerold; Matthias Nocker
  8. Incentives and Competition in Microfinance By Kaniska Dam; Prabal Roy Chowdhuri
  9. The effect of audit regimes on applications for long-term care By Lindeboom, Maarten; van der Klaauw, Bas; Vriend, Sandra
  10. Competing for promotion: are “the best” always the best? By Migheli, Matteo
  11. Politicians' promotion incentives and bank risk exposure in China By Wang, Li; Menkhoff, Lukas; Schröder, Michael; Xu, Xian
  12. Why Demotion of Older Workers is a No-Go Area for Managers By van Dalen, H.P.; Henkens, K.
  13. Can Helping the Sick Hurt the Able? Incentives, Information and Disruption in a Disability-Related Welfare Reform By Nitika Bagaria; Barbara Petrongolo; John Van Reenen
  14. Military Retention Incentives: Evidence from the Air Force Selective Reenlistment Bonus By Justin Joffrion; Nathan Wozny
  15. Determinants of Job Satisfaction in Young Russian Workers By Francesco Bartolucci; Aleksandra Baschina; Giovanni S. F. Bruno; Olga Demidova; Marcello Signorelli

  1. By: Edmans, Alex; Gabaix, Xavier
    Abstract: This article studies traditional and modern theories of executive compensation, bringing them together under a unifying framework. We analyze assignment models of the level of pay, and static and dynamic moral hazard models of incentives, and compare their predictions to empirical findings. We make two broad points. First, traditional optimal contracting theories find it difficult to explain the data, suggesting that compensation results from 'rent extraction' by CEOs. In contrast, more modern theories that arguably better capture the CEO setting do deliver predictions consistent with observed practices, suggesting that these practices need not be inefficient. Second, seemingly innocuous features of the modeling setup, often made for tractability or convenience, can lead to significant differences in the model's implications and conclusions on the efficiency of observed practices. We close by highlighting apparent inefficiencies in executive compensation and additional directions for future research.
    Keywords: contract theory; executive compensation; optimal contracting; principal-agent problem; rent extraction
    JEL: D84 G34
    Date: 2015–05
  2. By: Venhorst V.; Cörvers F. (GSBE)
    Abstract: We estimate the impact of spatial mobility on job match quality by using a data set of recent Dutch university and college graduates We find positive wage returns related to spatial mobility. However, after controlling for the self-selection of migrants with an IV approach, this effect is no longer significant. We also find that, for our alternative job-match measures, where there is evidence of migrant self-selection, controlling for self-selection strongly reduces the effect of spatial mobility on job match quality. In some cases, the returns on spatial mobility are found to be negative, which may signal forced spatial mobility.
    Keywords: Analysis of Education; Human Capital; Skills; Occupational Choice; Labor Productivity; Wage Level and Structure; Wage Differentials; Geographic Labor Mobility; Immigrant Workers; Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics;
    JEL: I21 J24 J31 J61 R23
    Date: 2015
  3. By: Carey, Mark S. (Board of Governors of the Federal Reserve System (U.S.)); Sun, Bo (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We analyze the impact of bad-tail risks on managerial pay functions, especially the decision to pay managers in stock or in options. In contrast to conventional wisdom, we find that options are often a superior vehicle for limiting managerial incentives to take bad-tail risks while providing incentives to exert effort. Arrangements similar to collar options are able to incent the desired project choice in wider range of circumstances than call options or stock. However, information requirements appear high. We briefly explore alternatives with features similar to maluses and clawbacks, which are a bit like weakening the limited liability of managers.
    Keywords: Compensation; Bad tail risk
    JEL: D86 G20 G34
    Date: 2015–01–26
  4. By: Baudewijns C.; Gerards R.; Grip A. de (ROA)
    Abstract: This article investigates whether New Ways of Working NWW are related to employee work engagement in the Netherlands. We test our hypotheses using a sample of 656 employees from 14 industry sectors and 12 occupational fields. Our study reveals that three facets of NWW positively affect work engagement manage your own work, unlimited access and connectivity, and open workplace. The effects of open workplace and unlimited access and connectivity on work engagement appear to be fully mediated by the combination of social interaction and transformational leadership. Managing your own work is however not mediated by social interaction or transformational leadership. As such, it is the only facet of NWW that directly affects work engagement. Our results hold important practical implications for organizations that consider implementing NWW. To maximize the positive impact of NWW on work engagement, while keeping the cost of introducing NWW to a minimum, firms should take account of the abilities and preferences of their line managers with respect to transformational leadership. Depending on these, a limited or more comprehensive set of NWW facets may be most efficient at promoting work engagement.
    Date: 2015
  5. By: Oasis Kodila-Tedika (Université de Kinshasa Département d’Eco); Simplice Asongu (Yaoundé/Cameroun)
    Abstract: This paper explores the determinants of intelligence by focusing on the role played by barriers to the diffusion of competence and human capital. The results based on cross-sectional data from 167 countries consisting of 1996-2009 averages suggest that, genetic distance to global frontiers has a negative relationship with human capital. Countries that are genetically far from leading nations tend to have lower levels of human capital with the negative correlation from the USA frontier higher relative to the UK frontier. The sign is consistent with the relationship of genetic diversity and robust to the control of macroeconomic, geographical, institutional and influential variables. Policy implications are discussed.
    Keywords: Intelligence, Human Capital, Genetic distance
    JEL: G15 O50 O16 F15 N7
    Date: 2015–04
  6. By: Bryan, Mark L.; Bryson, Alex
    Abstract: Using data from the British Household Panel Survey (BHPS) we show performance pay (PP) increased earnings dispersion among men and women, and to a lesser extent among full-time working women, in the decade of economic growth which ended with the recession of 2008. PP was also associated with some compression in the lower half of the wage distribution for women. The effects were predominantly associated with a broad measure of PP that included bonuses. However, these effects were modest and there is no indication that PP became increasingly prevalent, as some had predicted, over the decade prior to recession.
    Date: 2015–04–29
  7. By: Stefanie Gerold; Matthias Nocker
    Abstract: This mixed-methods study examines factors determining employees‘ desire to reduce worktime. The results of a binary logit regression model, based on data from the Austrian Microcencus 2012, suggest that employees who prefer shorter weekly working hours are older, higher educated and work longer hours in white-collar positions, compared to those who do not wish to change their hours. Gender differences are greatest in terms of household and family characteristics, supporting the ‘male breadwinner & part-time’ model. Qualitative interviews have been conducted among employees who had the possibility to choose between a pay increase and equivalent leisure time via a new worktime policy (“Freizeitoption”) implemented in 2013. The results suggest that employees with higher education tend to reduce worktime. The fact that money is valued from a long-term, security perspective, as well as the tendency of assessing work performances by output indicators can be regarded as major obstacles for worktime reductions.
    Keywords: Working hours, working time preferences, working time reduction, working time policy, collective bargaining, mixed-methods
    JEL: J22 J33 J38 J51 J52 J58
    Date: 2015–05
  8. By: Kaniska Dam; Prabal Roy Chowdhuri (Division of Economics, CIDE)
    Abstract: We develop a model of competition among socially motivated microfinance institutions (MFIs), where the MFIs offer repayment-based incentive contracts to credit agents. The agents gather information regarding a borrower, and may, or may not collude with the borrower, taking bribes in return for not acting upon their information in case of collusion. We show that competition may either increase, or decrease incentives, with incentives becoming less high powered if the MFIs are not too motivated. Further, whenever either the moral hazard problem is relatively severe and/or the MFIs are not too motivated, competition increases default, thus providing a possible explanation for the recent episodes of crisis in the MFI sector. Interestingly, the effects of competition are linked to mission drift, i.e., whether the MFIs in the concerned countries are more, or less motivated. Further, default problems may worsen in case competition is accompanied by greater access to donor funds.
    Keywords: Microfinance; competition; collusion; staff incentive schemes; monitoring.
    Date: 2015–03
  9. By: Lindeboom, Maarten; van der Klaauw, Bas; Vriend, Sandra
    Abstract: This paper studies the effects of various audit regimes, differing in the degree of control and the presence of performance incentives, on behavior of care providers filing applications for providing long-term care services to patients. We present evidence from a large-scale field experiment in the Dutch market for long-term care. We find that increasing the degree of control reduces the number of applications and that introducing performance incentives reduces this even further. However, we find evidence for substitution with other types of long-term care services, which are often less extensive. Finally, we find detrimental effects on audit approval rates, but we provide some results showing that assessors are less strict when audits do not have direct implications.
    Keywords: auditing; field experiment; incentives; long-term care
    JEL: C93 H51 I18
    Date: 2015–05
  10. By: Migheli, Matteo (University of Turin)
    Abstract: Several selection processes use multistage tourname nts to choose the best candidates. The theoretical models predict that tournaments are efficient in selecting the best candidates, as they stimulate the best to perform relatively better than their opponents. Empirical tests are difficult, as data on the agents involved in these selections are scarce. Exploiting data from a field natural experiment, the World Swimming Championships, I show that two- and three-stage tournaments are effective for stimulating performance, selecting the best contestants and the winners are the players who are the most able to increase their relative performance from one stage to the next.
    Date: 2015–04
  11. By: Wang, Li; Menkhoff, Lukas; Schröder, Michael; Xu, Xian
    Abstract: This paper shows that politicians' pressure to climb the career ladder increases bank risk exposure in their region. Chinese local politicians are set growth targets in their region that are relative to each other. Growth is stimulated by debt-financed programs which are mainly financed via bank loans. The stronger the performance incentive the riskier the respective local bank exposure becomes. This effect holds primarily for local banks which are under a certain degree of control of local politicians and it has increased with the release of recent stimulus packages requiring local co-financing.
    Keywords: Bank Lending,Bank Risk Exposure,Local Politicians,Promotion Incentives
    JEL: G21 G23 H74
    Date: 2015
  12. By: van Dalen, H.P. (Tilburg University, Center For Economic Research); Henkens, K.
    Abstract: Demotion – a reduction of an employee’s rank and salary - is often mentioned by managers and policy makers as a measure to increase the employability of older workers, but in practice demotion is rarely applied. This paper takes a fresh look at the question of demotion by first employing a survey among European employers and second the use of a survey and a vignette study among managers in the Netherlands (N = 355). The European survey shows that although demotion is not often applied a considerable percentage contemplates the application in the near future, especially those employers who encounter work staff aging. The vignette study offers insight in their stated preferences with respect to demotion for a particular employee, described by a number of possible causes of underperformance. The key question is whether these causes refer to internal or external causes and causes which the employee can or cannot control. By using background characteristics on the manager, obtained through survey questions, we can assess whether the decision to demote is also affected the expectations of managers on the wider consequences of making demotion standard practice. Internal causes such as not willing to participate in training, and not being motivated to work increase the likelihood of demotion, whereas external causes (financial situation of the firm) are of little importance. However, even when an employee scores low points on all possible causes, demotion still is hesitantly considered. Much of this hesitation is connected to the perceived negative externalities which managers expect to materialize once demotion becomes standard practice
    Keywords: older workers; demotion; productivity; wages
    JEL: M51 M54 J62
    Date: 2015
  13. By: Nitika Bagaria; Barbara Petrongolo; John Van Reenen
    Abstract: Disability rolls have escalated in developed nations over the last 40 years. The UK, however, stands out because the numbers on these benefits stopped rising when a welfare reform was introduced that integrated disability benefits with unemployment insurance (UI). This policy reform improved job information and sharpened bureaucratic incentives to find jobs for the disabled (relative to those on UI). We exploit the fact that policy was rolled-out a quasi-random across geographical areas. In the long-run the policy improved the outflows from disability benefits by 6% and had an (insignificant) 1% increase in unemployment outflows. This is consistent with a model where information helps both groups, but bureaucrats were given incentives to shift effort towards helping the disabled find jobs and away from helping the unemployed. Interestingly, in the short-run the policy had a negative impact for both groups suggesting important disruption effects. The policy passes a dynamic cost-benefit calculation, but the costs of the organizational disruption implies that benefits take about six years to exceed the one-off set-up costs making it unattractive for (myopic) policy-makers.
    Keywords: Incentives, public sector, unemployment benefits, performance standards
    JEL: H51 I13 J18
    Date: 2015–04
  14. By: Justin Joffrion (U.S. Air Force Academy); Nathan Wozny (U.S. Air Force Academy)
    Abstract: The limited lateral entry and rigid pay structure for U.S. military personnel present challenges in retaining skilled individuals who have attractive options in the civilian labor market. One tool the services use to address this challenge is the Selective Reenlistment Bonus (SRB), which offers eligible personnel with particular skills a substantial cash bonus upon reenlistment. However, the sequential nature of the bonus offer and reenlistment process limits the ability to adjust manpower quickly, raising interest in research that estimates the effect of the SRB on retention. While this literature has acknowledged challenges including potential endogeneity of bonus levels, attrition, and reenlistment eligibility, many studies do not address these concerns adequately. This paper uses a comprehensive panel data set on Air Force enlisted personnel to estimate the effect of the SRB on retention rates. We exploit variation in bonus levels within skill groups, control for civilian labor market conditions, and model reenlistment eligibility to avoid common assumptions that lead to biased impact estimates. We find substantial heterogeneity in the effect of the bonus, with the largest effects on first-term service members and those whose skills have not historically received a substantial bonus. We also find evidence that the bonus affects the timing of reenlistment decisions in addition to their frequency.
    Keywords: Selective reenlistment bonus, Retention, Reenlistment, Timing effect, Labor supply
    JEL: F14 F16 J6
    Date: 2015–04
  15. By: Francesco Bartolucci; Aleksandra Baschina; Giovanni S. F. Bruno; Olga Demidova; Marcello Signorelli (-)
    Abstract: A growing economic literature regards the analysis of job satisfaction; however, as for young people the investigations are still scarce. In this paper we analyse job satisfaction among Russian young workers by using the data collected for four items, the first of which concerns the general satisfaction about the job; the other three items concern specific aspects of job satisfaction with respect to work condition, earning, and opportunity for professional growth. The corresponding response variables are categorical with five ordered categories, from “absolutely unsatisfied” to “absolutely satisfied”. The longitudinal dataset also contains personal information about the respondents (gender, age, marital status, number of children, educational level, etc.). We estimate ordered logit models of job satisfaction with individual fixed effects for a panel data of Russian young workers, carrying out separate analyses for the general job satisfaction variable and three variables on specific aspects of job satisfaction. If wages adjusted to fully compensate workplace disamenities, we would expect that differences in job satisfaction across individuals would not be systematically related to wage differentials, ceteris paribus. But this is not the case for our panel: for all but one of the samples considered there is at least one job satisfaction variable with a significantly positive wage effect. We, therefore, interpret this result as a failure of the theory of compensating wage differentials in the Russian youth labour market. There is the interesting exception, though, that compensating wage differentials do seem at work among the older subjects in the panel. Our estimates also show strong gender and location effects.
    Keywords: job satisfaction, young people, Russia
    JEL: J28 J81
    Date: 2015–03–07

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