1 Introduction

Personnel economics is

„the application of economic and mathematical approaches and econometric and statistical methods to traditional questions in human resource (HR) management."

(Lazear, 2008, Personnel Economics, in The New Palgrave Dictionary of Economics, v.6, p.380.

• Selection, hiring, promotion

• Training

• Compensation and benefits

• Work process management: job design, decision rights allocation, work arrangements (teams vs. individual work.)

Reason 1:

Labor costs (wages, benefits, statutory contributions) are a major cost item. Managing labor properly could therefore make a large impact on the bottom line.

Reason 2:

People are among the most valuable assets organizations have. Numerous evidence on the importance of people management practices for firm performance.

Examples:

• Lazear (2000): a 44% increase in labor productivity as a result of the move from hourly wage to piece rate.

• Bloom, Liang, Roberts, and Ying (2015): a 13% increase in output as a result of allowing to work from home. Also, positive effects in terms of improved job satisfaction and reduced employee turnover. —>People management can make a positive difference to organizational performance, leading to a more prosperous economy and a better society.

  
  

Reason 3:

There i soften a conflict of interest between employees and the owners of the firm.

• Employees care about income net of costs of effort, i.e want to work as lightly as possible.

• Firm owners care about income net of costs of production (including labor costs), i.e want to maximize employee performance given the wage.

  —>Much of personnel economics builds on the Principal-Agent model that focuses on the conflict of interest between the firm (principal) and the worker (agent).

  —>Fortunately, a number of solutions exist to accommodate the differences in principal and agent's interests, some of which will be presented in the course.

1. Beginning:

employee recruitment and selection.

2. Duration:

probation, promotion, human capital accumulation, the provision of incentives, performance evaluation.

3. End:

employee turnover.