nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2015‒10‒25
sixteen papers chosen by
Patrick Kampkötter
Universität zu Köln

  1. Performance Pay and Applicant Screening By Uwe Jirjahn; Jens Mohrenweiser
  2. The Performance Pay Premium: How Big Is It and Does It Affect Wage Dispersion? By Alex Bryson; John Forth; Lucy Stokes
  3. Employee Stock Purchase Plans - Gift or Incentive? Evidence from a Multinational Corporation By Alex Bryson
  4. More effort with less pay: On information avoidance, belief design and performance By Huck, Steffen; Szech, Nora; Wenner, Lukas M.
  5. Incentive Contracts for Teams: Experimental Evidence By Claudia M. Landeo; Kathryn E. Spier
  6. Has Performance Pay Increased Wage Inequality in Britain? By Alex Bryson
  7. Bankers' pay and excessive risk By Thanassoulis, John; Tanaka, Misa
  8. The Carrot and the Stick: The Business Cycle Implications of Incentive Pay in the Labor Search Model By Julien Champagne
  9. Leading Leadership style to motivate cultural-oriented female employees in the I.T sector of developing country: I.T Sectors responses from Pakistan By Haque, Adnan ul; Faizan, Riffat; Zehra, Nasreen; Baloch, Akhtar; Nadda, Vipin; Riaz, Fayyaz
  10. A Theory of Education and Health By Titus J. Galama; Hans van Kippersluis
  11. Bilingual Schooling and Earnings: Evidence from a Language-in-Education Reform By Cappellari, Lorenzo; Di Paolo, Antonio
  12. Brain Types and Wages By Drydakis, Nick
  13. An Analysis of the Factors Affecting Turnover Intensions: Evidence from Private Sector Universities of Peshawar By Shah, Usman; Khan, Jangraiz
  14. Technology, team production and incentives By Smirnov, Vladimir; Wait, Andrew
  15. Behavior in Group Contests: A Review of Experimental Research By Roman M. Sheremeta
  16. Temporary Employment, Demand Volatility and Unions: Firm-Level Evidence By Devicienti, Francesco; Naticchioni, Paolo; Ricci, Andrea

  1. By: Uwe Jirjahn; Jens Mohrenweiser
    Abstract: Using German establishment data, we show that the relationship between performance pay and intensity of applicant screening depends on the nature of production. In establishments with increased multitasking, performance pay is associated with a greater intensity of applicant screening. In establishments without increased multitasking, it is associated with a reduced intensity. The findings fit the hypothesis that performance pay induces a positive self-sorting of employees if jobs are less multifaceted. In this case, employers using performance pay need no intense applicant screening to ensure a high quality of matches between workers and jobs. However, if jobs are more multifaceted, performance pay can entail problems of adverse self-sorting. In order to mitigate or overcome these problems, employers tying pay to performance screen applicants more intensely.
    Keywords: Performance pay, multitasking, self-sorting, applicant screening, non-managerial employees, managerial employees
    JEL: J33 J60 M51 M52
    Date: 2015
  2. By: Alex Bryson; John Forth; Lucy Stokes
    Abstract: Using nationally representative linked employer-employee data we find one-quarter of employees in Britain are paid for performance. The log hourly wage gap between performance pay and fixed pay employees is .36 points. This falls to .15 log points after controlling for observable demographic, job and workplace characteristics. It falls still further to .10 log points when comparing "like" employees in the same workplace, indicating that performance pay contracts are used in higher paying workplaces. The premium rises markedly as one moves up the wage distribution: it is seven times higher at the 90th percentile than it is at the 10th percentile in the wage distribution (.42 log points compared to .06 log points).
    Date: 2014–07
  3. By: Alex Bryson
    Abstract: Many large listed firms offer workers the opportunity to buy shares in the firm at discounted rates through employee stock purchase plans (ESPP). The discounted rate creates a gift exchange, where the firm hopes that workers who accept the gift reciprocate with greater loyalty and effort. But ESPPs diverge from standard gift exchange or efficiency wage models. Employees have to invest some of their own money by purchasing shares at the discounted rate to accept the gift. A sizeable number choose to reject the gift. In addition, the value of the ESPP gift varies with the share price and thus with the performance of the firm and the effort of workers in total. For workers who buy subsidized shares, an ESPP sets up a group incentive pay system analogous to profit sharing, all-employee stock options, or an employment ownership scheme that makes part of workers' compensation depend on company performance. Using data from the UK establishments of a multinational firm that places its ESPP at the heart of its employee compensation system, we compare the workplace behaviour of employees who join the ESPP with that of observationally equivalent workers who do not join the plan. We find that workers who purchase shares at subsidized prices work harder for longer hours and have lower quit and absence rates than workers who do not join the plan, but are no more involved in co-monitoring the performance of fellow employees than non-Plan members. We also find perceptions of peers' Plan participation influences workers' behaviour. ESPP joiners socialise more with colleagues outside work: this greater sense of social identity with colleagues, predicted under some gift exchange models, lowers their costs of work effort and may explain why they are more productive than those who do not join the ESPP. These findings highlight the distinct place of subsidized share purchase schemes in the spectrum of gift exchange and group incentive pay systems.
    Date: 2014–09
  4. By: Huck, Steffen; Szech, Nora; Wenner, Lukas M.
    Abstract: In a tedious real effort task, subjects know that their piece rate is either low or ten times higher. When subjects are informed about their piece rate realization, they adapt their performance. One third of subjects nevertheless forego this instrumental information when given the choice - and perform stunningly well. Agents who are uninformed regarding their piece rate tend to outperform all others, even those who know that their piece rate is high. This also holds for enforced instead of self-selected information avoidance. All our findings can be captured by a model of optimally distorted expectations following Brunnermeier and Parker (2005).
    Keywords: Optimal Expectations,Belief Design,Performance,Real Effort Task,Coarse Incentive Structures,Workplace Incentives
    JEL: D83 D84 J31 M52
    Date: 2015
  5. By: Claudia M. Landeo (University of Alberta); Kathryn E. Spier (Harvard Law School and NBER)
    Abstract: This paper reports the results of an experiment on incentive contracts for teams. The agents, whose efforts are complementary, are rewarded according to a sharing rule chosen by the principal. Depending on the sharing rule, the agents confront endogenous prisoner's dilemma or stag-hunt environments. Our main findings are as follows. First, we demonstrate that ongoing interaction among team members positively affects the principal's payoff. Greater team cooperation is successfully induced with less generous sharing rules in infinitely-repeated environments. Second, we provide evidence of the positive effects of communication on team cooperation in the absence of ongoing team interaction. Fostering communication among team members does not significantly affect the principal's payoff, suggesting that agents' communication is an imperfect substitute for ongoing team interaction. Third, we show that offering low sharing rules can backfire. The agents are willing to engage in costly punishment (shirking) as retaliation for low offers from the principal. Our findings suggest that offering low sharing rules is perceived by the agents as unkind behavior and hence, triggers negative reciprocity.
    Keywords: Moral Hazard in Teams, Prisoner's Dilemma, Stag-Hunt Games, Infinitely-Repeated Games, Communication, Reciprocity, Laboratory Experiments
    JEL: C72 C90 D86 K10 L23
    Date: 2015–10
  6. By: Alex Bryson
    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
  7. By: Thanassoulis, John (Bank of England); Tanaka, Misa (Bank of England)
    Abstract: This paper studies the agency problem between bank management, shareholders, and the taxpayer. Executive bonuses increase in the probability the bank is too big to fail. Bank management recognise it is very likely optimal to select risky projects which exploit the taxpayer, implying project selection effort (eg due diligence) is more expensive to incentivise. This agency problem leads to too much risk for society, not for shareholders. Compensation rules aimed at solving management-shareholder agency problems — equity pay, deferred, including debt — do not correct the excessive risk taking. By contrast, malus and clawbacks can incentivise the bank management to make better risk choices.
    Keywords: Executive compensation; bankers bonuses; risk-taking; financial regulation; return on equity; clawback; deferral
    JEL: G21 G28 G32 G38
    Date: 2015–10–14
  8. By: Julien Champagne
    Abstract: This paper considers a real business cycle model with labor search frictions where two types of incentive pay are explicitly introduced following the insights from the micro literature on performance pay (e.g. Lazear, 1986). While in both schemes workers and firms negotiate ahead of time-t information, the object of the negotiation is different. The first scheme is called an “efficiency wage,” since it follows closely the intuition of the shirking model by Shapiro and Stiglitz (1984), while the second is called a “performancepay” wage, since the negotiation occurs over a wage schedule that links the worker’s wage to the worker’s output. The key feature here is that the worker can then adjust the level of effort (i.e. performance) provided in any period. I simulate a shift toward performance-pay contracts as experienced by the U.S. labor market to assess whether it can account simultaneously for two documented business cycle phenomena: the increase in relative wage volatility and the Great Moderation. While the model yields higher wage volatility when performance pay is more pervasive in the economy, it produces higher volatility of output and higher procyclicality of wages, two results counterfactual to what the U.S. economy has experienced during the Great Moderation. These results pose a challenge to the idea that higher wage flexibility through an increase in performance-pay schemes can account for business cycle statistics observed over the past 30 years.
    Keywords: Business fluctuations and cycles; Labour markets
    JEL: E24 J33 J41
    Date: 2015
  9. By: Haque, Adnan ul; Faizan, Riffat; Zehra, Nasreen; Baloch, Akhtar; Nadda, Vipin; Riaz, Fayyaz
    Abstract: This empirical study explores different Leadership styles' dimensions influencing culturaloriented female employees' motivation in rapidly improving Pakistan's I.T sector. Hypothetico-Inductive-Deductive model was adapted to construct theoretical framework by opting mixed method under realism philosophy. Sample size is 357 female employees working in software houses of Pakistan's 10 cities selected by combining convenience sampling and stratified sampling techniques. Survey questionnaire contained close-ended questions based on Bass and Avolio (1994) Full Range MLQ Model and WMS. Moreover, 36 female employees were interviewed selected from top five business cities' of Pakistan's software houses through convenience sampling. Results indicate transformational leadership style's dimensions are dominant in motivating female employees scoring overall 0.75. Moreover, transactional has moderate positive relation (0.38) with sub-motivational variables. Though, 'Management-By-Expectation (Passive)' along with Laissez-faire leadership style has no relationship with sub-variables of motivation. In I.T sector of Pakistan, female employees are mainly motivated by interpersonal relations with supervisors, peers, and subordinate, friendly environment, flexibility, socialization, recognition, responsibility, social rewards, and most importantly improved working conditions. It is essential to motivate female workers through 'walk-the-talk' approach along with coerce and accurate vision.
    Keywords: Transformational Leadership, Transactional Leadership, Laissez Faire Leadership, Dimensions of Leadership Styles, Cultural-oriented female workforce, I.T Industry
    JEL: L29 L86 M1 M12
    Date: 2015–10–18
  10. By: Titus J. Galama (RAND Corporation); Hans van Kippersluis (Erasmus School of Economics)
    Abstract: This paper presents a unified theory of human capital with both health capital and, what we term, skill capital endogenously determined within the model. By considering joint investment in health capital and in skill capital, the model highlights similarities and differences in these two important components of human capital. Health is distinct from skill: health is important to longevity, provides direct utility, provides time that can be devoted to work or other uses, is valued later in life, and eventually declines, no matter how much one invests in it (a dismal fact of life). Lifetime earnings are strongly multiplicative in skill and health, so that investment in skill capital raises the return to investment in health capital, and vice versa. The theory provides a conceptual framework for empirical and theoretical studies aimed at understanding the complex relationship between education and health, and generates several new testable predictions.
    Keywords: Returns to higher education, cognitive abilities, health, marginal treatment effect
    JEL: D91 I10 I12 J00 J24
    Date: 2015–03
  11. By: Cappellari, Lorenzo (Università Cattolica del Sacro Cuore); Di Paolo, Antonio (University of Barcelona)
    Abstract: We exploit the 1983 language-in-education reform that introduced Catalan alongside Spanish as medium of instruction in Catalan schools to estimate the labour market value of bilingual education. Identification is achieved in a difference-in-differences framework exploiting variation in exposure to the reform across years of schooling and years of birth. We find positive wage returns to bilingual education and no effects on employment, hours of work or occupation. Results are robust to education-cohort specific trends or selection into schooling and are mainly stemming from exposure at compulsory education. We show that the effect worked through increased Catalan proficiency for Spanish speakers and that there were also positive effects for Catalan speakers from families with low education. These findings are consistent with human capital effects rather than with more efficient job search or reduced discrimination. Exploiting the heterogeneous effects of the reform as an instrument for proficiency we find sizeable earnings effects of skills in Catalan.
    Keywords: bilingual education, returns to schooling, language-in-education reform, Catalonia
    JEL: J24 J31 I28
    Date: 2015–10
  12. By: Drydakis, Nick (Anglia Ruskin University)
    Abstract: We examine the association between brain types and wages using the UK Behavioural Study dataset for the period 2011 to 2013 (four waves). By applying Empathising-Systemising Theory (E-S), the estimations suggest that, for men and women, systemising traits are associated with higher wage returns than empathising traits and that a Type-S brain (also known as a Male-brain, entailing greater skills in directing systems) is associated with higher wage rewards than a Type-E brain (also known as a Female-brain, entailing more social skills). In addition, wage decompositions suggest that systemising traits can explain greater differences in the assigned gender wage gap compared to empathising traits. Interestingly, the estimations suggest that the wage returns of empathising and systemising traits vary by occupation and that each trait might provide an absolute wage-return advantage in certain occupations. Whilst men and women in certain occupations might face positive wage rewards when they have empathising and systemising traits and work atypical of those common to their gender, it would appear that evaluating individuals' empathising, systemising and brain type is perceived to be important for employees' wage returns.
    Keywords: brain-type, empathising-systemising theory, segregation, wages, wage-gap
    JEL: J24 J31
    Date: 2015–10
  13. By: Shah, Usman; Khan, Jangraiz
    Abstract: High rate of turnover is one of major problems relevant to human resource management in private sector universities in Pakistan. It is on one hand, depriving the universities from talented and qualified labour force, and on the other hand, affecting the education standard of these universities. The present study was carried out to explore the inter­ relationship among the job satisfaction and turnover intentions and factors affecting them. Primary data was used for this purpose. The data was collected from a sample 150 employees of private sector universities of Peshawar. In the results, Job satisfaction and promotion opportunities appeared as significant factor affecting turnover intentions. It is recommended for the private sector universities on the basis of results of the study to give competitive salaries to the staff, increase promotion opportunities, improve leave policy, financial rewards, and make the system transparent and justified.
    Keywords: Turnover Intensions, Private Sector Universities, Peshawar
    JEL: M10 M19 M51
    Date: 2015–08–01
  14. By: Smirnov, Vladimir; Wait, Andrew
    Abstract: Incentive reversal (IR) is when higher rewards induce some agents to reduce their effort (Winter, 2009). We show that IR can hold for all agents when: there is an improvement in production technology; and rewards are based on team output. Whilst IR requires at least one worker's marginal return to be decreasing in team productivity when agents invest simultaneously, this is not necessary with sequential investments. Rather, IR can occur with sequential investment when the marginal return of effort for all agents is increasing with improvements in technology.
    Keywords: Moral hazard in teams; Technology; Productivity; Incentive reversal
    Date: 2015–10
  15. By: Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University and Economic Science Institute, Chapman University)
    Abstract: Group contests are ubiquitous. Some examples include warfare between countries, competition between political parties, team-incentives within firms, group sports, and rent-seeking. In order to succeed, members of the same group have incentives to cooperate with each other by expending individual efforts. However, since effort is costly, each member also has an incentive to abstain from expending any effort and instead free-ride on the efforts of other members. Contest theory shows that the intensity of competition between groups and the amount of freeriding within groups depend on the group size, sharing rule, group impact function, contest success function, and heterogeneity of players. We review experimental studies testing these theoretical predictions. Almost all studies of behavior in group contests find significant overexpenditure of effort relative to the theory. We discuss potential explanations for such overexpenditure, including the utility of winning, bounded rationality, relative payoff maximization, parochial altruism, and social identity. Despite over-expenditure, most studies find support for the comparative statics predictions of the theory (with the exception of the “group size paradox”). Finally, studies show that there are effective mechanisms that can promote withingroup cooperation and conflict resolution mechanisms that can de-escalate and potentially eliminate between-group conflict.
    Keywords: groups, contests, experiments
    JEL: C7 C9 D7 H4 J4 K4 L2 M5
    Date: 2015
  16. By: Devicienti, Francesco (University of Turin); Naticchioni, Paolo (University of Rome 3); Ricci, Andrea (ISFOL)
    Abstract: This paper investigates the effect of workplace unionization and product market volatility on firms' propensity to use temporary employment. Using Italian firm level data, we show that unionization and volatility have a positive impact on the share of temporary contracts. However, as volatility increases the union effect becomes negative, suggesting that in a highly volatile economic environment unions may be concerned about the weakening of their bargaining power associated with an extensive use of temporary workers. Furthermore, these effects are at work only for the use of non-training temporary contracts, while training temporary contracts are not affected by unions, volatility and their interplay. We argue that this occurs because non-training temporary contracts can be used by firms as a buffer stock to cope with uncertainty and by unions to protect insiders, while training temporary contracts are more likely to be used as a screening device for future permanent positions.
    Keywords: product demand volatility, training, temporary workers, unions, firms
    JEL: J51 J23 J24
    Date: 2015–10

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