nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2020‒01‒27
eight papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. Free Riding and Workplace Democracy – Heterogeneous Task Preferences and Sorting By Kenju Kamei; Thomas Markussen
  2. The Dark Side of Monetary Bonuses : Theory and Experimental Evidence By Gonzalez-Jimenez, Victor; Dalton, Patricio; Noussair, Charles
  3. Specific Human Capital and Real Wage Cyclicality: An Application to Postgraduate Wage Premium By Gu, Ran
  4. Inputs, Incentives, and Self-Selection at the Workplace By Amodio, Francesco; Martinez-Carrasco, Miguel A.
  5. The effect of horizontal pay dispersion on the effectiveness of performance-based incentives By Grabner, Isabella; Martin, Melissa A.
  6. Managerial Overconfidence and Self-Reported Success By Nikolaj Kirkeby Niebuhr
  7. A Human Capital Theory of Structural Transformation By Max Gillman
  8. Attribution Bias by Gender: Evidence from a Laboratory Experiment By Fenske, James; Castagnetti, Alessandro; Sharma, Karmini

  1. By: Kenju Kamei (Durham University Business School); Thomas Markussen (University of Copenhagen)
    Abstract: A novel laboratory experiment is used to show that mismatching between task preferences and task assignment undermines worker productivity and leads to free riding in teams. We elicit task preferences from all workers. Workers’ endogenous sorting into tasks significantly improves productivity under individual-based remuneration (performance pay). Under team-based remuneration (revenue sharing), free riding is significant, but almost exclusively among those working on undesired tasks. Task selection by majority voting in teams alleviates free riding, but only partly so, because some workers are still assigned to undesired tasks. Our findings have broad implications for research using real effort tasks.
    Keywords: free riding, team, workplace democracy, experiment, real effort
    JEL: C91 C92 H41 D82 J01
    Date: 2020–01
  2. By: Gonzalez-Jimenez, Victor; Dalton, Patricio (Tilburg University, Center For Economic Research); Noussair, Charles
    Abstract: To incentivize workers and boost performance, firms often offer monetary bonuses for the achievement of production goals. Such bonuses appeal to two types of motivations of the worker. On the one hand, the existence of a goal, on its own, triggers an intrinsic motivation associated with the desire to not fall short of the goal. On the other hand, the money paid to achieve the goal constitutes an extrinsic motivation. This paper studies the possibility that these two effects are substitutes when workers set their own goals. We develop a theoretical model that predicts that if the worker is sufficiently loss averse and faces uncertainty about reaching a production goal, offering a monetary payment contingent on reaching such a goal is counterproductive. This is because under the presence of monetary bonuses, the loss averse worker prefers setting lower goals, which yield lower but more likely bonus payments. Lower goals, in turn, negatively affect subsequent performance. Results from a laboratory experiment corroborate this prediction. This paper highlights the limits of monetary bonuses as an effective incentive when workers are loss averse.
    Keywords: goal-setting; contracts; loss aversion; bonuses; experiment
    JEL: J41 D90 C91 D81
    Date: 2020
  3. By: Gu, Ran
    Abstract: This paper examines how specific human capital affects labour turnover and real wage cyclicality in a frictional labour market. I develop an equilibrium search model with long-term contracts and imperfect monitoring of worker effort. Imperfect monitoring creates a moral hazard problem that requires firms to pay efficiency wages. The optimal contract implies that more specific capital reduces job separation, thereby alleviating the moral hazard and increasing wage stability over the business cycle. I apply this model to explain novel stylised facts about the cyclicality of the postgraduate-undergraduate wage premium. Postgraduate degree holders experience lower cyclical variation in real wages than those with undergraduate degrees. This effect is significant for workers with a long tenure, but not for new hires. Moreover, postgraduates have more specific human capital than undergraduates. Estimates reveal that specific capital can explain the educational gaps both in labour turnover and in real wage cyclicality.
    Keywords: specific human capital, real wage cyclicality, postgraduates, wage premium, contracts, search
    JEL: E24 E32 I24 J31 J64
    Date: 2019–12–02
  4. By: Amodio, Francesco (McGill University); Martinez-Carrasco, Miguel A. (Universidad de los Andes)
    Abstract: This paper studies how asymmetric information over inputs affects workers' response to incentives and self-selection at the workplace. Using daily records from a Peruvian egg production plant, we exploit a sudden change in the worker salary structure and find that workers' effort, firm profits, and worker participation change differentially along the two margins of input quality and worker type. Firm profits increase differentially from high productivity workers, but absenteeism and quits of these workers also differentially increase. Evidence shows that information asymmetries over inputs between workers and managers shape the response to incentives and self-selection at the workplace.
    Keywords: asymmetric information, input heterogeneity, incentives, self-selection
    JEL: D22 D24 J24 J33 M11 M52 M54 O12
    Date: 2019–12
  5. By: Grabner, Isabella; Martin, Melissa A.
    Abstract: In response to general calls for increased transparency in society, pay transparency policies are growing in importance. Given that pay transparency unavoidably gives employees the opportunity to make comparisons between themselves and others, in this study we address the question of how these comparisons impact the incentive effects of performance contingent pay, and consequently their performance outcomes. Specifically, we empirically examine whether horizontal pay dispersion alters the effectiveness of performance-based pay contracts, which firms typically use to incentivize effort. Exploiting our unique access to a large healthcare provider, we document the moderating role of horizontal pay dispersion on the effectiveness of individual monetary incentives at generating increased individual performance. To provide a more nuanced understanding of the moderating effect of pay dispersion, we further examine the boundary conditions of the proposed interaction. In particular, we examine the differential effect of overall pay dispersion on employees that rank high versus low in the pay distribution and disaggregate overall pay dispersion into performance-related versus performance-unrelated pay dispersion. Our findings consistently show a positive moderating effect of pay dispersion when employees are more likely to consider the observed pay dispersion as legitimate, and a negative moderation effect when this is less likely the case. Our study strengthens the understanding of how individual level incentives function in the context of a multi-person firm setting. Our results document that individual incentives are effective, but also suggest that pay dispersion can have a significant influence on the incentive-performance relation. These findings provide some evidence that individuals are concerned not only with their own payout, but also with that of others, and that this concern has a significant impact on individual’s effort provision, and consequently performance.
    Keywords: Incentive compensation, pay-for-performance sensitivity, social comparisons, pay dispersion, pay transparency
    Date: 2020–01–09
  6. By: Nikolaj Kirkeby Niebuhr (Department of Economics and Business Economics, Aarhus University)
    Abstract: I consider the optimal contract for an overconfident manager in a principal-agent model with moral hazard where the contract is written on the earnings of the firm. Overconfidence causes the manager to overestimate his ability to affect the outcome of the firm. Overconfidence first reduces cost of agency, and if the level of overconfidence is significant enough, it causes the manager to wager on his wrong beliefs. The accounting system obscures the outcome of the manager's effort, which attenuates the effect of significant overconfidence and decreases the principal's profit. Inducing the manager to truthfully communicate his self-observed success allows the principal to directly contract on the cause of disagreement, the manager's effect on firm outcome. This reduces the risk premium for a slightly overconfident manager and emphasizes the wager effect for a significantly overconfident manager. The value of communication is first decreasing in overconfidence for a slightly overconfident manager and then increasing in overconfidence for a significantly overconfident manager.
    Keywords: Overconfidence, Moral hazard, Communication, Disclosure
    JEL: D83 D86 D91 M41
    Date: 2020–01–10
  7. By: Max Gillman
    Abstract: The paper presents a human capital based theory of the sectoral transformation along the balanced growth path equilibrium. Allowing a small upward trend in the productivity of the human capital sector, combined with di§erential human capital intensity and constant productivity across sectors, output gradually shifts over time from relatively less human capital intensive sectors towards more human capital intensive sectors. Sectors intensive in the factor that is becoming relatively more plentiful find their relative prices falling, their "effective productivities" rising at di§erential rates inversely to their relative price decline, and their relative outputs expanding. Adding more sectors of greater human capital intensity causes labor time to decrease across existing sectors, and by relatively more in the least human capital sectors. literature.
    Keywords: human capital intensity; sectoral allocation; labor shares; productivity; technological change; neoclassical; optimal growth model
    JEL: E13 J24 O11 O14 O33 O41
    Date: 2019–12
  8. By: Fenske, James (University of Warwick); Castagnetti, Alessandro (University of Warwick); Sharma, Karmini (University of Warwick)
    Abstract: In many settings, economic outcomes depend on the competence and effort of the agents involved, and also on luck. When principals assess agents’ performance they can suffer from attribution bias by gender: male agents may be assessed more favorably than female agents because males will be rewarded for good luck, while women are punished for bad luck. We conduct a laboratory experiment to test whether principals judge agents’ outcomes differently by gender. Agents perform tasks for the principals and the realized outcomes depend on both the agents’ performance and luck. Principals then assess agents’ performance and decide what to pay the agents. Our experimental results do not show evidence consistent with attribution bias by gender. While principals’ payments and beliefs about agent performance are heavily influenced by realized outcomes, they do not depend on the gender of the agent. We find suggestive evidence that the interaction between the gender of the principal and the agent plays a role. In particular, principals are more generous to agents of the opposite gender.
    Date: 2020

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