nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2017‒08‒06
seven papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. What if Wages Fell During a Recession? By Joy A. Buchanan; Daniel Houser
  2. Careers and Mismatch for College Graduates: College and Non-college Jobs By Andrew Agopsowicz; Chris Robinson; Ralph Stinebrickner; Todd Stinebrickner
  3. The Potential Output Gains from Using Optimal Teacher Incentives: An Illustrative Calibration of a Hidden Action Model By Nirav Mehta
  4. Talent Discovery, Layoff Risk and Unemployment Insurance By Marco Pagano; Luca Picariello
  5. Teamwork as a Self-Disciplining Device By Fahn, Matthias; Hakenes, Hendrik
  6. Firm Dynamics with Subjective Beliefs By Jose Maria Barrero
  7. Inequality and Competitive Effort: The Roles of Asymmetric Resources, Opportunity and Outcomes By FALLUCCHI Francesco; RAMALINGAM Abhijit

  1. By: Joy A. Buchanan (Brock School of Business, Samford University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: Many economies exhibit downward wage rigidity. Surveys of managers by Bewley [1999] and Campbell and Kamlani [1997] indicate that employers hold wages rigid because they believe morale will suffer after a wage cut. Otherwise, there is little evidence for how employers’ beliefs about workers contribute to wage rigidity and whether those beliefs are accurate. We demonstrate that effort falls after workers experience a wage cut and also that workers form reference points from wage contracts. Despite this partial confirmation of the †morale theory†as an explanation for wage rigidity, half of the employers in our experiment cut wages and lose money as a result. Because our design allows us to compare beliefs and effort precisely, we find that when employers don’t believe the morale theory they will not hold wages rigid. In a treatment where a recession is offset by nominal inflation, real wage cuts do not have a significant effect. Loss averse employers are less likely to cut wages and more likely to correctly predict the negative effect of wage cuts.
    Keywords: experimental economics
    JEL: C92 D84 J31
    Date: 2017–06
  2. By: Andrew Agopsowicz (University of Western Ontario); Chris Robinson (University of Western Ontario); Ralph Stinebrickner (Berea College); Todd Stinebrickner (University of Western Ontario)
    Abstract: A large literature studies the wage consequences of over-education in the sense of a worker, by some measure, having a higher level of education than is required for the job. We use unique new data to reexamine the common interpretation that initial over-education represents a harmful type of mismatch that arises due to information induced frictions. We contrast this with the alternative that college graduates are heterogeneous with respect to their human capital and that the labor market is appropriately allocating them to jobs, even when many are observed starting in jobs that do not require a college degree.
    Date: 2017
  3. By: Nirav Mehta (University of Western Ontario)
    Abstract: This note examines the potential output gains from the implementation of optimal teacher incentive pay schemes, by calibrating the Holmstrom and Milgrom (1987) hidden action model using data from Muralidharan and Sundararaman (2011), a teacher incentive pay experiment implemented in Andhra Pradesh, India. Findings suggest that the introduction of optimal individual incentive-pay schemes could result in very large increases in output, about six times the size of the (significant) results obtained in the experiment.
    Keywords: Hidden Action; Empirical Contracts; Teacher Incentive Pay
    Date: 2017
  4. By: Marco Pagano (University of Naples "Federico II", CSEF and EIEF); Luca Picariello (Norwegian School of Economics)
    Abstract: In talent-intensive jobs, workers’ performance reveals their quality. This enhances productivity and wages, but also increases layoff risk. If workers cannot resign from their jobs, firms can insure them via severance pay. If instead workers can resign, private insurance cannot be provided, and more risk-averse workers will choose less informative jobs. This lowers expected productivity and wages. Public unemployment insurance corrects this inefficiency, enhancing employment in talent-sensitive industries and investment in education by employees. The prediction that the generosity of unemployment insurance is positively correlated with the share of workers in talent-sensitive industries is consistent with international and U.S. evidence.
    Keywords: talent, learning, layoff risk, unemployment insurance
    JEL: D61 D62 D83 J24 J65
    Date: 2017–08–01
  5. By: Fahn, Matthias (LMU Munich and CESifo); Hakenes, Hendrik (University of Bonn and CEPR)
    Abstract: We show that team formation can serve as an implicit commitment device to overcome problems of self-control. If individuals have present-biased preferences, effort that is costly today but rewarded at some later point in time is too low from the perspective of an individual\'s long-run self. If agents interact repeatedly and can monitor each other, a relational contract involving teamwork can help to improve performance. The mutual promise to work harder is credible because the team breaks up after an agent has not kept this promise - which leads to individual underproduction in the future and hence a reduction of future utility.
    Keywords: self-control problems; teamwork; relational contracts;
    JEL: L22 L23
    Date: 2017–07–27
  6. By: Jose Maria Barrero (Stanford University)
    Abstract: A key question regarding firms' performance is how their perceptions and beliefs about the future impact their behavior. I use novel data on US firms' subjective beliefs to study whether they exhibit overoptimism (i.e. their expectations exceed rational forecasts) and overconfidence (i.e. they underestimate the variance across potential outcomes) in their perceptions of future sales growth. I document that US firms are overoptimistic, overestimating future sales growth by 2 to 5 percentage points, and also overconfident, underestimating the uncertainty about future sales by about 70 percent. I then study the quantitative implications of distorted subjective beliefs in a model of firm dynamics with investment subject to rich adjustment costs, and calibrate the model to match the degree of overconfidence and overoptimism observed in the data. Overoptimistic firms in the model expect better conditions in the future, leading them to have lower exit rates and lower profitability on average; by contrast, overconfident firms perceive less uncertainty about the future, leading them to exit quickly in the face of bad shocks and to grow disproportionately large in the face of good ones. Preliminary quantitative results also suggest that overconfidence rather than overoptimism is the more significant of the two distortions in terms of its effects on firm dynamics.
    Date: 2017
  7. By: FALLUCCHI Francesco; RAMALINGAM Abhijit
    Abstract: We study the effects of different sources of inequality in a commonplace economic interaction: competition. We investigate how individuals react to different types of inequality in experimental two-player Tullock contests where contestants expend resources to win a prize. We study three different sources of inequality: resources, abilities and possible outcomes. We find that overall competitive effort is greater in the presence of inequality in abilities than other inequalities. Unlike other forms, inequality in abilities elicits a very aggressive reaction from disadvantaged players relative to their advantaged opponents. The Quantal Response Equilibrium (QRE) suggests that financial incentives are less salient in the presence of a biased contest procedure.
    Keywords: rent seeking; contest; experiment; inequality; inequity; Quantal Response Equilibrium
    JEL: C91 C92 D31 D63 J78
    Date: 2017–07

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