nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2016‒07‒30
eleven papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. Incentives and selection in public employment By Cristina Giorgiantonio; Tommaso Orlando; Giuliana Palumbo; Lucia Rizzica
  2. Human capital and performance appraisal in the public sector: An empirical investigation from employees’ and senior managers’ perspective By Isychou, Despoina; Chountalas, Panos; Magoutas, Anastasios; Fafaliou, Irene
  3. Common Ownership, Competition, and Top Management Incentives By Miguel Antón; Florian Ederer; Mireia Giné; Martin Schmalz
  5. What Role Did Management Practices Play in SME Growth Post-recession? By Alex Bryson; John Forth
  6. Are Online Labor Markets Spot Markets for Tasks? A Field Experiment on the Behavioral Response to Wages Cuts By Chen, Daniel L.; Horton, John
  7. Cautious Hiring By Enoch Hill; Kai Ding
  8. Gender diversity in top-management positions in large family and nonfamily businesses By Kay, Rosemarie; Schlömer-Laufen, Nadine
  9. Contracting with Word-of-Mouth Management By Yuichiro Kamada; Aniko Ory
  10. Progressive taxation and (in)stability in an endogenous growth model with human capital accumulation: the case of Bulgaria By Vasilev, Aleksandar
  11. Principals, Agents and Incomplete Contracts: Are Surrender of Control and Renegotiation the Solution? By Matthias Kiefer; Edward Jones; Andrew Adams

  1. By: Cristina Giorgiantonio (Bank of Italy); Tommaso Orlando (Bank of Italy); Giuliana Palumbo (Bank of Italy); Lucia Rizzica (Bank of Italy)
    Abstract: The effectiveness of the Public administration depends on its ability to attract and select skilled individuals and encourage them to exert effort. Recruitment and career policies affect the composition of the pool of applicants who take part in the selection procedures. The process by which these are managed determines who, among the self-selected candidates, accesses public employment and, consequently, the distribution of individual characteristics across the public workforce. Such distribution, in turn, sets the environment in which incentive schemes are designed. This work provides an overview of the interactions among these dimensions and studies some critical aspects of the Italian context: the decreased selectivity and increased instability in recruitment, pay and career policies that insufficiently compensate education and skills, rigid selection procedures slanted towards generalist knowledge, the uniform application of incentive schemes to the entire Public administration without structural rearrangements. Furthermore, this work provides a critical comparison between these considerations and the direction taken by the recent reforms of public employment.
    Keywords: public sector labor markets, incentives, sorting
    JEL: J45 K31 M5
    Date: 2016–07
  2. By: Isychou, Despoina; Chountalas, Panos; Magoutas, Anastasios; Fafaliou, Irene
    Abstract: Human capital is often considered as one of the most fundamental requirements for high organizational performance, whereas key driver for the achievement of higher levels of employees' productivity is considered the employment of a suitable performance appraisal system. Based on this perspective, we assume that every organization needs to establish an effective appraisal system which will be sufficient to facilitate employees’ continuous development. This is especially relevant for public sector organizations that in some countries implement fundamentally flawed performance appraisal systems. On the verge of the transition from the bureaucratic to the new public management model, the organizational units of the public sector seem to have an excellent opportunity to redesign their key processes, including human capital appraisal forms. This paper explores the context and role of a few critical human capital practices, which are mainly related to employees’ self-evaluation and performance appraisal, and are currently implemented in the Greek public sector. To attain our goal, an empirical investigation was conducted via a questionnaire survey to specifically determine whether self-evaluation and appraisal problems exist, in particular in terms of objectivity, consistency, adequacy, and credibility. The questionnaires were addressed both to employees and senior managers. The empirical results obtained, highlight some core problems that the public sector faces, with regard to existing self-evaluation systems and appraisal practices. These, among others, include the following: a lack of objectivity both in employees’ self-evaluation and in their appraisals assessed by the senior managers; inconsistencies between the way the public servants perceive the range and quality of their merits and those included in their job description; mistrust and lack of reliability on employees’ evaluation reports and selection criteria. Finally, some policy reformations are proposed to cope with these problems.
    Keywords: public sector; performance appraisal system; employees' self-evaluation
    JEL: M50
    Date: 2016
  3. By: Miguel Antón (IESE Business School, Universidad de Navarra); Florian Ederer (Cowles Foundation, Yale University); Mireia Giné (IESE Business School, Universidad de Navarra); Martin Schmalz (University of Michigan)
    Abstract: Standard corporate finance theories assume the absence of strategic product market interactions or that shareholders don’t diversify across industry rivals; the optimal incentive contract features pay-for-performance relative to industry peers. Empirical evidence, by contrast, indicates managers are rewarded for rivals’ performance as well as for their own. We propose common ownership of natural competitors by the same investors as an explanation. We show theoretically and empirically that executives are paid less for own performance and more for rivals’ performance when the industry is more commonly owned. The growth of common ownership also helps explain the increase in CEO pay over the past decades.
    Keywords: Common ownership, competition, CEO pay, management incentives, governance
    JEL: D21 G30 G32 J31 J41
    Date: 2016–07
  4. By: Maria De Paola; Francesca Gioia; Vincenzo Scoppa (Dipartimento di Economia, Statistica e Finanza, Università della Calabria)
    Abstract: We ran a field experiment to investigate whether competing in rank-order tournaments with different prize spreads affects individual performance. Our experiment involved students from an Italian University who took an intermediate exam that was partly evaluated on the basis of relative performance. Students were matched in pairs on the basis of their high school grades and each pair was randomly assigned to one of three different tournaments. Random assignment neutralizes selection effects and allows us to investigate if larger prize spreads increase individual effort. We do not find any positive effect of larger prizes on students’ performance and in several specifications we do find a negative effect. Furthermore, we show that the effect of prize spreads on students’ performance depends on their degree of risk-aversion: competing in tournaments with large spreads negatively affects the performance of risk-averse students, while it does not produce any effect on students who are more prone to take risks.
    Keywords: Rank-Order Tournaments, Incentives, Prize Spread, Risk-Aversion, Randomized Experiment
    JEL: J33 J31 J24 D81 D82 C93
    Date: 2016–07
  5. By: Alex Bryson (University College London, National Institute of Social and Economic Research and Institute for the Study of Labor); John Forth (National Institute of Social and Economic Research)
    Abstract: Small and medium-sized enterprises (SMEs) are known to contribute significantly to aggregate economic growth. However, little is known about the role played by management practices in SME growth since recession. We contribute to the literature on SME growth by analysing longitudinal administrative data on firms' employment and turnover, taken from the UK's Business Structure Database (BSD), with data on management practices collected in face-to-face interviews from the HR Managers and employees who were surveyed as part of the 2011 British Workplace Employment Relations Survey (WERS). We find off-the-job training is the only management practice that is robustly and significantly associated with higher employment growth, increased turnover, and a decline in closure probabilities, over the period 2011-2014. The findings suggest SME investment in off-the-job training is sub-optimal in Britain such that firms could benefit economically from increasing the amount of off-the-job training they offer to their non-managerial employees.
    Keywords: SMEs; small and medium-sized enterprises; employment growth; sales; workplace closure; HRM; training; recession
    JEL: L25 M12 M50 M53
    Date: 2016–07–11
  6. By: Chen, Daniel L.; Horton, John
    Abstract: In some online labor markets, workers are paid by the task, choose what tasks to work on, and have little or no interaction with their (usually anonymous) buyer/employer. These markets look like true spot markets for tasks rather than markets for employment. Despite appearances, we find via a field experiment that workers act more like parties to an employment contract: workers quickly form wage reference points and react negatively to proposed wage cuts by quitting. However, they can be mollified with “reasonable” justifications for why wages are being cut, highlighting the importance of fairness considerations in their decision making. We find some evidence that “unreasonable” justifications for wage cuts reduce subsequent work quality. We also find that not explicitly presenting the worker with a decision about continuing to work eliminates “quits,” with no apparent reduction in work quality. One interpretation for this finding is that workers have a strong expectation that they are party to a quasi-employment relationship where terms are not changed, and the default behavior is to continue working.
    Keywords: Economics of IS; Electronic Commerce; Field Experiments; IT and new organizational form
    Date: 2016–07
  7. By: Enoch Hill (Wheaton College); Kai Ding (University of Minnesota)
    Abstract: There have been significant changes in the cyclicality of US labor productivity since the early 1990s. Previously, labor productivity was largely procyclical but beginning with the recession of the early 1990s labor productivity rises immediately following a recession before returning to prerecession levels. In this paper we develop a dynamic general equilibrium model in which a change in the importance of firm specificc human capital can explain the new pattern in labor productivity as well as partially account for the decrease in the rate of employment recovery (jobless recoveries) observed in the most recent three recessions. Additionally, we present empirical support that the importance of rm specificc human capital has in fact increased for recent recessions.
    Date: 2016
  8. By: Kay, Rosemarie; Schlömer-Laufen, Nadine
    Abstract: (Why) does the sex ratio in top-management positions in large family and nonfamily businesses differ? Using a unique data set and estimating (fractional) logit regressions we show that the female share in top-management positions in family businesses exceeds the one in nonfamily businesses. One reason is the selection mechanism social homophily from which females in family businesses benefit more because of a higher female share in the decision making body in family businesses. Another reason is the pathway self-appointment as (co-) leader of one's own business which is more common in family businesses. Nepotism seems not to play a role.
    Keywords: gender diversity,top-management positions,family businesses,selection mechanisms,pathways into top-management
    JEL: J16 M14 M51
    Date: 2016
  9. By: Yuichiro Kamada (Haas School of Business, University of California Berkeley); Aniko Ory (Cowles Foundation, Yale University)
    Abstract: We incorporate word of mouth (WoM) in a classic Maskin-Riley contracting problem, allowing for referral rewards to senders of WoM. Current customers’ incentives to engage in WoM can affect the contracting problem of a firm in the presence of positive externalities of users. We fully characterize the optimal contract scheme and provide other comparative statics. In particular, we show that offering a free contract is optimal only if the fraction of premium users in the population is small. The reason is that by offering a free product, the firm can incentivize senders to talk by increasing expected externalities that they receive and this can (partly) substitute for paying referral rewards only if there are few premium customers. This result is consistent with the observation that companies that successfully offer freemium contracts oftentimes have a high percentage of free users.
    Keywords: Word-of-mouth, referral rewards, freemium, contract theory
    JEL: D82 L21 M3
    Date: 2016–07
  10. By: Vasilev, Aleksandar
    Abstract: We show that in a endogenous growth model with human accumulation calibrated to Bulgarian data under the progressive taxation regime (1993-2007), the artificial economy exhibits equilibrium indeterminacy. These results are in line with the recent findings in Chen and Guo (2015) in the context of an AK endogenous growth model. Also, the findings are in contrast to Guo and Lansing (1988) who argue that progressive taxation works as an automatic stabilizer. Progressive taxation in our setup lead to equilibrium indeterminacy. This indeterminacy result could explain, at least partially, why the economic performance under the progressive taxation regime in Bulgaria was not impressive.
    Keywords: Progressive Income Taxation,Human capital,Endogenous Growth,Equilibrium (In)determinacy
    JEL: E32 E62
    Date: 2016
  11. By: Matthias Kiefer; Edward Jones; Andrew Adams (Heriot-Watt University)
    Abstract: Companies can be regarded as nexuses with contractual relationships between management and shareholders (Jensen and Meckling, 1976). The extent to which managerial and shareholder rewards are determined by incompleteness of contracts has been extensively studied (Hart, 1995a). Incomplete contracts affect the stability of the relationship between managers and shareholders as managers can leave or be dismissed (Oyer, 2004; Gillan, Hartzell, and Parrino, 2009). Furthermore, discretion for renegotiation of such contracts can be desirable, if stability is improved (Schwab and Thomas, 2006; Roberts and Sufi, 2009). Discretion for renegotiation of contracts between management and shareholders is increased in public companies when shareholders surrender control over management to boards (Blair and Stout, 1999; Peters and Wagner, 2014). Corporate stability, renegotiation of agreements and control rights over assets are not systematically captured by principal-agent models.
    Keywords: Board Insulation, Executive Compensation, Incomplete Contracts, Managerial Labor Market, Market for Corporate Control, Principal-Agent Model.
    JEL: D86 G38 J33 J65 K12 M52
    Date: 2016

This nep-hrm issue is ©2016 by Patrick Kampkötter. 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.