Quarterly Personnel Update-- 2022_03
Peter Kuhn
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1-4: The Basic Principal-Agent Problem
Bandiera, Oriana, Amanda Dahlstrand and Greg Fischer. 2020 Incentives and Culture: Evidence from a Multi-Country Experiment unpublished paper, London School of Economics.
Performance pay is common in Western countries but rarely used elsewhere. To see whether the effects of performance pay varies across countries with different cultures, the authors set up identical data-entry firms in three countries and randomize the incentives offered to workers. They find that performance pay is much less effective in countries with less individualistic cultures, suggesting that cultural norms must be considered when designing personnel policies in organizations.
On outsourcing:
Anderson, Stephen J. and David McKenzie. 2022 Improving Business Practices and the Boundary of the Entrepreneur: A Randomized Experiment Comparing Training, Consulting, Insourcing, and Outsourcing Journal of Political Economy Volume 130, Number 1 January 2022
Should small entrepreneurs learn how to do their own finance and marketing, or accomplish these tasks by insourcing workers or outsourcing tasks? Using a randomized experiment in Nigeria, the authors found that insourcing and outsourcing both dominate training the entrepreneur and do at least as well as business consulting at half the cost.
5.5: Multi-task Principal-Agent Interactions
Tahir Andrabi and Christina Brown 2022 Subjective versus Objective Incentives and Employee Productivity unpublished paper, University of Chicago.
In a multi-task environment, output based incentives may backfire by lead employees to reduce effort on non-incentivized outcomes. To test whether subjective incentives (manager-discretionary performance evaluation) can solve this problem, the authors conduct a field experiment in 230 Pakistani schools. While both subjective and objective incentives increase students’ test scores, objective incentives decrease non-test score student outcomes relative to subjective incentives.
9.5-9.6: Loss Aversion and Reference Points
Beam, Emily A., Yusufcan Masatlioglu, Tara Watson, and Dean Yang 2022. Loss Aversion or Lack of Trust: Why Does Loss Framing Work to Encourage Preventative Health Behaviors? NBER working paper no 29828.
Loss-framed incentives involve paying agents a lump sum up front, then ‘clawing back’ some of that money later if the agent underperforms. In environments where principals do not have an established reputation, loss-framed incentives have the added benefit of ensuring agents that they will, in fact, be paid for their efforts. In a health care experiment, the authors show that loss-framed incentives do incentivize patients to visit a clinic, but only because of this second, “principal reputation” effect. Loss aversion does not play a role.
9.7 Present Bias and Procrastination
Altmann, Steffen, Christian Traxler and Philipp Weinschenk 2021. Deadlines and Memory Limitations Management Science, forthcoming.
While procrastination can be explained by present-biased preferences, another possible explanation is limited memory: agents may simply forget to do what is needed to complete a task. In two natural field experiments at a dental clinic, the authors evaluate deadlines and the rewards attached to them as possible solutions to this problem. Deadlines are highly effective at inducing patients to schedule appointments, even when they are not tied to explicit rewards. Thus, memory and attention issues can play significant roles in causing procrastination, and deadlines can be a powerful management tool to encourage timely task completion.
10.1-10.3: Gift Exchange and Reciprocity
DellaVigna, Stefano, John A. List, Ulrike Malmendier and Gautam Rao 2022 “Estimating Social Preferences and Gift Exchange at Work” American Economic Review, 112(3): 1038–1074
The authors design three field experiments to estimate how workers' social preferences toward their employer motivates their work effort. They vary the pay rates offered to workers, the return to the employer, and employer generosity (demonstrated via unexpected gifts). Workers exert effort even without private incentives, but their effort does not depend on how much their effort helps the employer. This is consistent with a "warm glow" motive for helping the employer but not with pure worker altruism.
11. Income Effects
Balboni, Clare Oriana Bandiera, Robin Burgess, Maitreesh Ghatak and Anton Heil. 2022 Why Do People Stay Poor? Quarterly Journal of Economics, forthcoming
While income effects on the supply of effort suggest that receiving a lump-sum transfer should reduce effort, the poverty traps hypothesis argues that one-time, lump sum transfers can break the cycle of poverty by allowing people to make high-return investments. To test between these two views, the authors conduct a large-scale, randomized asset transfer and an 11-year panel of 6,000 households who begin in extreme poverty. The setting is rural Bangladesh and the assets are cows. For households with a sufficiently high initial level of assets, receiving a free cow allows a household to start accumulating assets, take on better occupations, and grow out of poverty.
14: Recruitment: Formal versus Informal? Broad versus Narrow?
Miller, Conrad and Ian Schmutte 2021 “The Dynamics of Referral Hiring and Racial Inequality: Evidence from Brazil” unpublished manuscript, UC Berkeley.
Using administrative data from Brazil, the authors show that firm founders have a strong tendency to hire from their own race. As their businesses grow, however, the racial mix of hires converges between companies with Black and White founders. Racial differences in dismissal rates also converge. The authors argue that these patterns can be explained using a job search model in which referrals play an important role, where referral networks are racially segregated, and where employers rely less on referral networks as their businesses grow.
16.1 Detecting Discrimination
Discrimination in Promotions:
Benson, Alan, Danielle Li, and Kelly Shue 2021. "Potential" and the Gender Promotion Gap unpublished paper, University of Minnesota.
The authors show that widely-used subjective assessments of employee “potential” contribute to gender gaps in promotion and pay. Specifically, in data on 30,000 management-track employees from a large retail chain, women receive substantially lower potential ratings despite receiving higher job performance ratings. These lower potential ratings do not appear to be based on accurate forecasts of future performance: in the future, women outperform male colleagues with the same potential ratings. Furthermore, these differences in assessed potential account for 30-50% of the gender promotion gap.
17: Setting Pay: Monopsony Models
Card, David 2022. “Who Set Your Wage?” NBER working paper no. 29683
The author discusses the recent literature on monopsonistic wage setting. Building on advances in search theory and in models of differentiated products, researchers have used a number of different strategies to identify the elasticity of firm-specific labor supply. A growing consensus is that firms have some wage-setting power, though many questions remain about the sources of that power.
Ashenfelter, Orley, David Card, Henry S. Farber and Michael R. Ransom 2022 “Monopsony in the Labor Market New Empirical Results and New Public Policies” Journal of Human Resources.
This paper summarizes the results of papers published in the April 2022 issue of the Journal of Human Resources: “Monopsony in the Labor Market: New Empirical Results and New Public Policies”. In addition to measuring labor supply elasticities, the papers study the effects of local labor market concentration and collusion among employers. This includes a detailed discussion the Silicon Valley High Tech Worker Conspiracy to suppress competition.
18: Setting Pay: Efficiency Wages
Ku, Hyejin. 2022. Does Minimum Wage Increase Labor Productivity? Evidence from Piece Rate Workers Journal of Labor Economics, forthcoming.
The author shows that the productivity of Florida tomato-pickers increased in response to sudden increase in their minimum wage. After eliminating other possible channels, an increase in worker effort appears to be the main cause of this change. Similar to Lazear, Shaw and Stanton’s results during the Great Recession, the main cause seems to be a reduction in the value of workers’ outside options: The higher minimum wage increased a worker’s risk of not being picked up for daily employment in this casual labor market, where daily employment is decided on an ad hoc basis.
21.1 Helping and Sabotage in Tournaments
Chen, Siyu and Zihan Hu “How Competition Shapes Peer Effects: Evidence from a University in China” unpublished paper, Cornell University.
When multiple high-ability Chinese university students are randomly assigned to share a dorm room, their academic performance decreases. These negative peer effects are greatest when the intensity of competition between the students increases. Using a follow-up study, the authors argue that competition discourages help and induces unfriendly behaviors among roommates.
23.2: Gender, Confidence and Competitiveness
Bandiera, Oriana, Nidhi Parekh, Barbara Petrongolo, and Michelle Rao 2021 Men Are from Mars, and Women Too: A Bayesian Meta-Analysis of Overconfidence Experiments. IZA discussion paper no. 14950
Gender differences in self-confidence have been proposed to explain gender differences in entry into competitions, and in representation in high-income occupations. Combining data from a large number of over-confidence experiments, the authors the authors find, however, that both men and women are typically overconfident. Also, combining evidence from all the studies, the authors cannot statistically reject the hypothesis that there is no gender gap in self-confidence.
Exley, Christine L., and Judd B. Kessler 2022 The Gender Gap in Self-Promotion Quarterly Journal of Economics, forthcoming.
In a series of experiments involving over 4,000 online participants and over 10,000 school-aged youth, girls subjectively describe their performance on math-and-science type task as worse than boys. This gender gap in self-evaluations persists with age and arises as early as the sixth grade. No gender gap arises if individuals are asked about their performance on a more female-typed task.
25: Team Production in Practice
Frederiksen, Anders, Daniel Baltzer Schjødt Hansen, Colleen Flaherty Manchester 2022. Does Group-Based Incentive Pay Lead To Higher Productivity? Evidence from a Complex and Interdependent Industrial Production Process IZA discussion paper no. 14986
The authors assess the effects of introducing group-based
performance pay in a modern industrial production setting using. Performance increased by 19 percent, with
three quarters coming from increased performance of existing workers and the
remaining from selection. The program
was designed to create trust, a common goal, and a shared identity, all of which
limited freeriding within the groups.
Thanks for your attention!
Note: 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.