Quarterly Personnel Update-- 2021_03

[Peter Kuhn]

As always, this email contains links to this quarter's new additions to the Personnel Economics Resources website.  

Today I'd also like to announce a new resource on the website called:

Desserts:  Short, Fun Videos on New Developments in Personnel Economics.

"Dessert" Slides & Videos cover extensions to the course and new research since the textbook was published. They are designed to be used as instructional materials that highlight ongoing developments in the field in an accessible way.  

This quarter's new references are:  

The Principal-Agent Problem

 

1-4:  The Basic Principal-Agent Problem

 

Sockin, Jason and Michael Sockin. 2020 “Job Characteristics, Employee Demographics, and the Cross-Section of Performance Pay” unpublished paper, University of Pennsylvania.

Who receives performance pay?  Using data from Glassdoor, the authors show that whether a person receives performance pay depends more on the type of job that is performed than on personal characteristics like age, education, experience and education.  Specifically, performance pay is most common among more senior workers, managers, in non-routine occupations requiring interpersonal skills.

 

5.5:  Multi-task Principal-Agent Interactions

 

Zhao, Rui R. "All-or-nothing monitoring." American Economic Review 98.4 (2008): 1619-28)

Provides theoretical examples of cases where output-based incentive contracts can be economically efficient, even when not all tasks can be incentivized. 

Kvaløy, Ola  and Trond E. Olsen. Balanced Scorecards: A Relational Contract Approach
CESifo Working Paper No. 8922, February 2021

Balanced scorecards typically connect pay to a weighted sum of multiple performance measures. Theoretically, the authors show that such index contracts can be economically optimal under some circumstances. 

Silver-Greenberg, Jessica, and Robert Gebeloff Maggots, Rape and Yet Five Stars: How U.S. Ratings of Nursing Homes Mislead the Public  New York Times, March 13, 2021

Investigative reporting on how U.S. nursing homes ‘gamed’ a ratings system that was intended to accurately measure performance and safety. 

 

5.7:  Ratchet Effects

 

Matejka, Michal, Matthias D. Mahlendorf  and Utz Schäffer  The Ratchet Effect: Theory and Empirical Evidence  unpublished paper, Arizona State University, December 2020.

The authors focus on the target-setting process for a sample of European financial executives between 2011 and 2019.  Inconsistent with models of the ratchet effect, they find that managers who exceeded their target in one year report that they find their next target easier to achieve.  One possible explanation is that principals use generous target revisions as rewards for high levels of past performance. 

 

6. Optimal Monitoring

 

Bergman, Peter. 2021  “Parent-Child Information Frictions and Human Capital Investment: Evidence from a Field Experiment” Journal of Political Economy 129(1)

This paper thinks of parents as principals who are trying to motivate their child to work hard at school.  In a field experiment, the author shows that giving parents more accurate information (i.e. better monitoring) about their child’s missed assignments improves student achievement.

 

Herz, Holger and Christian Zihlmann, Christian Adverse Effects of Monitoring: Evidence from a Field Experiment CESifo Working Paper No. 8890, February 2021

In an experiment on remote workers, the authors find that monitoring reduces the average performance of workers, especially among workers who are intrinsically motivated. 

 

Evidence on Employee Motivation

 

9.2 Intrinsic, Symbolic and Image Motivation

 

Awards

 

Gubler, Timothy, Ian Larkin and Lamar Pierce.  2016 “Motivational Spillovers from Awards: Crowding Out in a Multitasking Environment”  Organization Science 27(2): 233-504

While cash awards for attendance temporarily improved attendance for directly-affected workers in an industrial laundry plant, the awards did not habituate improved attendance.  Further, the award program crowded out the internal motivation workers who previously had excellent attendance, and reduced performance on tasks not included in the award program.  The authors argue that the high-performing, intrinsically motivated workers perceived these attendance awards are unfair. 

Lacetera, Nicola and Mario Macis. Social image concerns and prosocial behavior: Field evidence from a nonlinear incentive scheme. Journal of Economic Behavior & Organization 76 (2010) 225–237

 

Shows that Italian blood donors are motivated by symbolic prizes (medals), but only if the prizes are announced in the local newspaper and awarded in a public ceremony.  Thus, social image concerns seem to be the primary drivers of awards’ effectiveness in this context.

 

Kosfeld, Michael and Susanne Neckermann  2011  “Getting More Work for Nothing? Symbolic Awards and Worker Performance” AEJ: Micro 3(3): 86-99

When student workers in an international NGO were given the opportunity to earn a congratulatory card honoring the best performance in their group, mean job performance rose by about 12 percent. 

Kuhn, Peter J. and Lizi Yu 2021 “Kinks as Goals: Accelerating Commissions and the Performance of Sales Teams” IZA working paper no. 14115. 

Accelerating commissions are convex reward schedules in which the marginal commission rate jumps upwards when output reaches a threshold.  The authors show that small retail sales teams are motivated by these accelerators, but not in the way predicted by standard economic models.  Instead, the teams appear to treat these thresholds as symbolic rewards that yield direct utility. 

 

 

9.5-9.6:  Loss Aversion and Reference Points

 

Dodini, Samuel.  2020 “Making Reference-Dependent Preferences: Evidence from Door-to-Door Sales unpublished paper, Cornell University.

Using daily data on door-to-door salespeople, the author shows that the workers form sales expectations based on their personal long-run objectives regarding the company’s end-of-year bonus plan.  Once a worker has attained their expected sales for the day, they are much more likely to stop working, suggesting that these expectations function as reference points.  Importantly, however, these expectations are derived from long-run bonus contracts designed by firms to motivate their workers.

 

9.7 Present Bias and Procrastination

 

Aggarwal, Shilpa, Rebecca Dizon-Ross and Ariel D. Zucker 2020 “Incentivizing Behavioral Change: The Role of Time Preferences”  NBER working paper no 27079

The authors propose an alternative to commitment contracts for motivating impatient agents. This alternative, called time-bundling makes the payment for future effort increase in current effort.  For example, the worker could be paid only if they achieve a performance target both today and tomorrow.  Impatient agents accept such contracts because they strongly discount future effort, and honor them because the marginal reward to effort in both periods is higher than in a linear contract.   Time-bundled contracts improved health among diabetics by raising the number of steps walked per day. 

 

10.6 Trust and the Cost of Control

 

Relational Contracts

Macchiavello, Rocco and Ameet Morjaria.2021 “Competition and Relational Contracts in the Rwanda Coffee Chain” Quarterly Journal of Economics, forthcoming. 

The authors study relational contracts between farmers and mills in Rwanda’s coffee industry.  They find that increased market competition reduces the use of relational contracts reduces mills’ performance and makes farmers worse off.  This happens because competition increases farmers’ temptation to default on the relational contract. 

 

10.7 Fairness Among Workers

 

Baker, Michael, Yosh Halberstam, Kory Kroft, Alexandre Mas and Derek Messacar 2019  Pay Transparency and the Gender Gap.  NBER working paper number 25834.

The authors estimate that public sector salary disclosure laws reduced the gender pay gap between men and women by approximately 30 percent among university faculty salaries in Canada.  This reduction is mostly associated with an increase in women’s salaries (not a decline in men’s), and is most evident in universities where faculty are unionized.

 

11. Income Effects

 

Böheim, René and Michael Topf. 2021 Unearned Income and Labor Supply: Evidence from Survivor Pensions in Austria CESifo Working Paper No. 8851.

The authors study the effects of a 34 percent reduction in the survivor pensions earned by newly-widowed men in Austria.  Pension reductions caused a 3.5 to 5.4 increase in survivors’ employment rates in the long run, corresponding to an extensive-margin labor supply elasticity of about –0.9 to –1.3.

Kaur, Supreet, Sendhil Mullainathan,Suanna Oh, and Frank Schilbach. 2021. Do Financial Concerns Make Workers Less Productive? NBER working paper no 28338.

Does having more cash on hand make workers lazy and reduce labor supply?   By randomizing the timing of Indian manufacturing workers’ pay, the authors show that average productivity is 6.2 percent higher on cash-rich days, especially among poorer workers.  The authors argue that the effect is likely psychological:  Concerns about money can create mental burdens such as worry, stress, or sadness thaty can interfere with the ability to work effectively.

 

Banerjee, Abhijit, Dean Karlan, Hannah Trachtman, and Christopher R. Udry 2020. Does Poverty Change Labor Supply? Evidence from Multiple Income Effects and 115,579 Bags  NBER working paper no. 27314

The authors estimate whether receiving additional ‘free’ income raises or reduces labor supply in a Ghanaian bag-making operation.  They find that recipients of unconditional cash grants increase, rather than reduce, their supply of labor, and argue that this result is best explained by a positive psychological productivity effect.

 

Selection

 

Advertising Jobs

 

Coffman, Katherine, Manuela Collis, and Leena Kulkarni. "When to Apply?" Harvard Business School Working Paper, No. 20-062, January 2021.

The authors use lab and field experiments to study women’s willingness to apply for higher return, more challenging work.  In male-typed domains, women view themselves as less qualified for a given opportunity, both because of differences in beliefs about own ability and in beliefs about where the bar is.  Reducing ambiguity surrounding required qualifications reduces the gender gap in willingness to apply among qualified applicants, increasing both the diversity and talent of the applicant pool.

 

Flory, Jeffrey A.,  Andreas Leibbrandt, Christina Rott, and Olga 2021 Stoddard Increasing Workplace Diversity: Evidence from a Recruiting Experiment at a Fortune 500 Company Journal of Human Resources, 56(1):73-92

In a natural field experiment, the authors vary the content in recruiting materials of a major financial services corporation.  They find that signaling explicit interest in employee diversity more than doubles the interest in openings among racial minority candidates, as well as the likelihood that they apply and are selected.  Impacts on gender diversity are less sharp and generally not significant.

16.1 Detecting Discrimination in Hiring

 

Cowgill, Bo, and Patryk Perkowski.  2020 Delegation in Hiring:  Evidence from a Two-Sided Audit Columbia Business School Research Paper No. 898.

More and more employers are delegating the recruitment process to firms and individuals in the recruitment process outsourcing (RPO) industry.  This paper studies the behavior of RPO recruiters using an extension of the traditional resume audit methodology that can measure the effects of both employers’ and workers’ preferences on labor market matching.  It finds that recruiters’ career concerns lead them to misallocate callbacks by catering to employers’ preferences for alumni of big companies and elite schools, who are then "over-interviewed" relative to their probability of joining the firm.

16.2 Causes of Discrimination

 

Bar, Revital; Zussman, Asaf. 2017. “Customer Discrimination: Evidence from Israel” Journal of Labor Economics 35:4, pp. 1031-1059.

The authors study customer discrimination against Arab workers in the Israeli market for labor-intensive services. Relying on surveys, field data, and a natural experiment, they provide evidence consistent with Becker’s customer discrimination model.  First, a significant share of Jewish customers prefer to receive labor-intensive services from firms employing Jewish rather than Arab workers; these preferences are most strongly linked to concerns for personal safety. Second, customer preferences affect firms’ hiring decisions. Third, firms employing Arab workers charge significantly lower service prices than those employing only Jewish workers.

 

17:  Setting Pay:  Monopsony Models

 

Prager, Elena and Matt Schmitt (2021) “Employer Consolidation and Wages: Evidence from Hospitals” American Economic Review 2021, 111(2): 397–427.

The authors study whether wage growth slows following hospital mergers.  Mergers reduce wage growth, but only when the increase in concentration is large and workers' skills are industry-specific.  The reductions in wage growth are attenuated in labor markets with strong labor unions.

Retention

Glaser, Darrell J. and Ahmed S. Rahman. 2021 Between the Dockyard and the Deep Blue Sea: Retention and Personnel Economics in the Royal Navy  IZA Discussion paper no.  140137.

The authors study how promotions, payouts, positions, and peers affect worker retention.  Using random variation in task assignments and job promotions in the Royal Navy, they show that retention is bolstered by firm-specific human capital, while technological changes can reduce retention.  Retention is also reduced by a lack of promotion opportunities, and "exit contagion" from exits of former peers.

 

18:  Setting Pay:  Efficiency Wages

 

Lusher, Lester, Geoffrey Schnorr and Rebecca L.C. Taylor. 2021. Unemployment Insurance as a Worker Indiscipline Device? Evidence from Scanner Data IZA working paper no. 14105. 

Matching high-frequency productivity measures from individual supermarket cashiers to plausibly exogenous changes in UI benefit duration during the Great Recession, the authors find a modest but statistically significant negative relationship between UI benefits and worker productivity:  Consistent with the efficiency wage model, better outside options (higher UI) reduce worker productivity.  

Tournaments

 

20.1-20.6:  A Simple Model of Tournaments

 

Lemus, Jorge and Guillermo Marshall. 2021. Dynamic Tournament Design: Evidence from Prediction Contests Journal of Political Economy 129(2). 

Online contests have become a prominent form of innovation procurement, but little is known about their optimal design.  The authors study the impact of a providing a leaderboard on outcomes in such contests using a student competition.  While the impact of impact of a leaderboard is theoretically ambiguous –some participants may get discouraged and quit, while others may decide to raise effort to stay remain competitive-- the authors find that a leaderboard on average improves competition outcomes.

 

21.1 Helping and Sabotage in Tournaments

 

Holzhacker, Martin Kamil, Stephan Kramer, Michal Matejka and Nick Hoffmeister. 2018  “Relative Target Setting and Cooperation”  unpublished manuscript, Arizona State University.  

The authors study how firms use past peer performance to revise managers’ performance targets in an industrial services company.  Consistent with tournament theory, the authors find that firms tend to avoid basing targets on peer performance in situations where co-operation between peers is important for productivity.  In this firm, co-operation is especially important when managers need to share specialized equipment and staff with their peers to manage capacity bottlenecks. 

 

22.3: Addressing Ability Differences in Tournaments

 

Cotton, Christopher, Brent Hickman, and Joseph Price. 2021 “Affirmative Action and Human Capital Investment: Evidence from a Randomized Field Experiment” Journal of Labor Economics, forthcoming.

The authors measure the incentive effects of Affirmative Action (AA) policies on study effort and math proficiency in an experiment where students were paid based on their relative performance on a mathematics exam.  AA increases study effort and exam performance for the majority of disadvantaged students targeted, but reduces the performance of the highest-ability students.  On average, however, study activity and exam performance rise under AA.

 

Teams

 

26.3 Moderate Complementarity (e.g. O-Ring Production)

 

Do Leaders Matter?

Hoffman, Mitch and Steve Tadelis 2021. “People Management Skills, Employee Attrition, and Manager Rewards: An Empirical Analysis” Journal of Political Economy 129(1).  

Using personnel data from a large high-tech firm, the authors show that a manager’s survey-measured people management skills have a strong negative relation to employee turnover, but have few effects on other outcomes, such as employee salary growth, probability of promotion, or patenting.  Better people managers themselves receive higher subjective performance ratings, higher promotion rates, and larger salary increases.

 

26.5 Extreme Substitutability (Volunteer’s Dilemma)

 

Banerjee, Ritwik and Priyoma Mustafi 2020 Using Social Recognition to Address the Gender Difference in Volunteering for Low Promotability Tasks IZA discussion paper no. 13956. 

The authors use a modified volunteer's dilemma game to examine if non-monetary interventions, particularly, social recognition can be used to change the gender norms associated with volunteering for low-promotability tasks. They find that competition for social recognition increases the overall likelihood that someone in a group has volunteered, and can close the volunteering gender gap. The results suggest that public recognition of volunteering can change the default gender norms in organizations and increase efficiency at the same time.

27.2:  Skill Diversity, Information Sharing, and Team Performance

 

Dahl, Gordon B., Andreas Kotsadam and Dan-Olof Rooth. 2021 Does Integration Change Gender Attitudes?  The Effect of Randomly Assigning Women to Traditionally Male Teams.  Quarterly Journal of Economics, forthcoming.

The authors study the effects of randomly assigning female recruits to some squads but not others during boot camp in the Norwegian military.  They find that living and working with women for eight weeks causes men to have more egalitarian attitudes, for example on whether men believe housework should be shared equally.  These attitudinal changes are however only temporary in nature.  Contrary to the predictions of many policy makers, the authors did not find that integrating women into squads hurt male recruits’ performance or satisfaction with service. 

Thanks for your attention!

Please remember that:

• this site is searchable at any time for key and recent articles on any personnel topic you may be working on
• all references are linked for easy access
• numbered section headings correspond to my textbook
• newcomers can sign up for email updates on the site
• The article descriptions in these updates are not copies of the authors’ abstracts.  While they may use text from those abstracts (and/or the article), they are my own summaries that (a) endeavor to be shorter than most abstracts, and (b) attempt to place the article in the broader context of personnel economics as a field.  I hope that you will find them helpful.