nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2022‒03‒14
six papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. “Since You’re So Rich, You Must Be Really Smart”: Talent, Rent Sharing, and the Finance Wage Premium By Michael Böhm; Daniel Metzger; Per Strömberg
  2. Can Displaced Labor Be Retrained? Evidence from Quasi-Random Assignment to Trade Adjustment Assistance By Benjamin G. Hyman
  3. Task Allocation and On-the-job Training By Mariagiovanna Baccara; SangMok Lee; Leeat Yariv
  4. Intergenerational human capital,risk aversion, and the poverty trap By Pham, Chau
  5. Granular Search, Market Structure, and Wages By Gregor Jarosch; Jan Sebastian Nimczik; Isaac Sorkin
  6. Restless Contracting By Can Urgun

  1. By: Michael Böhm (University of Bonn, IZA, and Swedish House of Finance); Daniel Metzger (Erasmus University of Rotterdam, SHoF, ECGI, and Financial Markets Group); Per Strömberg (Stockholm School of Economics(SSE), SHoF, ECGI, and CEPR)
    Abstract: Financial sector wages have increased extraordinarily over the last decades. We address two potential explanations for this increase: (1) rising demand for talent and (2) firms sharing rents with their employees. Matching administrative data of Swedish workers, which include unique measures of individual talent, with financial information on their employers, we find no evidence that talent in finance improved, neither on average nor at the top. The increase in relative finance wages is present across talent and education levels, which together can explain at most 20% of it. In contrast, rising financial sector profits that are shared with employees account for up to half of the relative wage increase. The limited labor supply response may partly be explained by the importance of early-career entry and social connections in finance. Our findings alleviate concerns about “brain drain” into finance but suggest that finance workers have captured rising rents over time.
    Keywords: Industry Wage Premia; Talent Allocation; Rent Sharing; Earnings Inequality; Compensation in Financial Sector
    JEL: J24 J31 G20
    Date: 2022–02
  2. By: Benjamin G. Hyman
    Abstract: The extent to which workers adjust to labor market disruptions in light of increasing pressure from trade and automation commands widespread concern. Yet little is known about efforts that deliberately target the adjustment process. This project studies 20 years of worker-level earnings and re-employment responses to Trade Adjustment Assistance (TAA)—a large social insurance program that couples retraining incentives with extended unemployment insurance (UI) for displaced workers. I estimate causal effects from the quasi-random assignment of TAA cases to investigators of varying approval leniencies. Using employer-employee matched Census data on 300,000 workers, I find TAA approved workers have $50,000 greater cumulative earnings ten years out—driven by both higher incomes and greater labor force participation. Yet annual returns fully depreciate over the same period. In the most disrupted regions, workers are more likely to switch industries and move to labor markets with better opportunities in response to TAA. Combined with evidence that sustained returns are delivered by training rather than UI transfers, the results imply a potentially important role for human capital in overcoming adjustment frictions.
    Date: 2022–02
  3. By: Mariagiovanna Baccara (Washington University); SangMok Lee (Washington University); Leeat Yariv (Princeton University)
    Abstract: We study dynamic task allocation when providers' expertise evolves endogenously through training. We characterize optimal assignment protocols and compare them to discretionary procedures, where it is the clients who select their service providers. Our results indicate that welfare gains from centralization are greater when tasks arrive more rapidly, and when training technologies improve. Monitoring seniors' backlog of clients always increases welfare but may decrease training. Methodologically, we explore a matching setting with endogenous types, and illustrate useful adaptations of queueing theory techniques for such environments.
    Keywords: Dynamic Matching, Training-by-Doing, Market Design
    JEL: D47 M53
    Date: 2021–09
  4. By: Pham, Chau (University of Warwick)
    Abstract: This paper addresses two issues : the underinvestment in education and the povertytrap that ensues for poor households. In a setting where the end outcome is binary, aninvesting agent faces two levels of risk, one in the intermediate outcome - how muchhuman capital she obtains for a given amount of investment, and one inherent in theend outcome - whether she gets the high-paid job. We show that when human capital is inheritable, risk-averse agents are deterred from investing because their parentsare not sufficiently educated. Moreover, the U-shaped expected utility means theoptimal investment occurs at either corners. If this investment or underinvestment is sustained through generations, a separating equilibrium such that poor households do not invest while wealthier ones do emerges. The divergence in educational attainmenttranslates into a divergence in wealth between those who invest and those who do not.A simple calibration employing data from the NLSY97 demonstrates the existence ofthese equilibria at different levels of risk-aversion.
    Keywords: intergenerational human capital ; poverty trap ; risk-aversion ; underinvestment JEL Classification: I32 ; I24 ; C60
    Date: 2021
  5. By: Gregor Jarosch (Princeton University and NBER); Jan Sebastian Nimczik (ESMT Berlin and IZA); Isaac Sorkin (Stanford University and NBER)
    Abstract: We develop a model where labor market structure affects the division of surplus between firms and workers. In a model of random search and large employers, workers might apply to another job controlled by the same employer in the future. This possibility endows firms with size-based market power. The reason is that outside options are truly outside the firm: firms do not compete with their own vacancies. Hence, a worker’s outside option is worse when bargaining with a larger firm, and wages depend on market structure. We calibrate the model to Austrian data and find that such size-based market power depresses wages.
    Keywords: labor market, labor economics
    JEL: E20 J01
    Date: 2021–07
  6. By: Can Urgun (Princeton University)
    Abstract: I explore how a principal dynamically chooses among multiple agents to utilize for production. The principal chooses at most one agent to utilize in every period affecting the states of the agents. A utilized agent changes its state because it is utilized, but the nonutilized agents do not remain at rest: they also change their state. The analysis requires a novel methodological approach: the agency problem that the principal faces with each agent is shown to be an appropriately designed restless bandit, creating a multiarmed restless bandit. The optimal contract is characterized by an index rule for the restless bandit.
    Keywords: Relational Contracts, Restless Bandits, Dynamic Contracting
    JEL: D21 D86 L14 L24
    Date: 2021–04

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