Personnel Economics Resources-- Quarterly Update, March 2020
Peter Kuhn
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The Principal-Agent Problem
Multi-tasking:
Athey, Susan, Kevin Bryan and Joshua Gans. “Designing Organizations and Incentives with Human and Artificial Intelligence Agents”, paper presented at American Economic Association meetings, January 2020.
Building on Aghion-Tirole’s (1997) multi-task agency model, Athey et al. study principals who can use both human agents and algorithms to perform tasks. The authors study when the human or the AI should make the final decision, how incentives and tasks should be designed for both kinds of agents, what types of ‘preferences’ programmers should assign to algorithms. When humans and algorithms work together, it can be optimal to endow algorithms with task preferences that differ from the agent’s.
Ratchet Effects:
Jeffrey C. Ely and Martin Szydlowski, "Moving the Goalposts," Journal of Political Economy 128, no. 2 (February 2020): 468-506.
This theory paper considers a situation where –in contrast to the standard ratchet effect model-- the principal but not the worker knows the difficulty of the task. The optimal contract involves “moving the goalposts”: the principal first gives the agent just enough information to suggest that the task may be easy. If the task is indeed difficult, the agent is told this only after working long enough to put the difficult task within reach. The agent then completes the difficult task even though he never would have chosen to at the outset.
Career Concerns:
Ytsma, Erina, and Jana Gallus. “Recognition and Reputation as Drivers of Open Source Success”. work in progress, Carnegie Mellon University, 2019.
The authors conducted a field experiment on GitHub that varied the publicness of the aggregate feedback (thumbs up or down) that contributors got. The goal is to distinguish the effects of reputation-linked financial incentives (“career concerns”) from non-financial rewards on innovative effort, and how this differs across organizational settings (open source, closed source, inner-source).
Evidence on Employee Motivation
Reference Points and Loss
Aversion:
Pierce, Lamar, Alex Rees-Jones and Charlotte Blank. The Negative Consequences of Loss-Framed Performance Incentives Unpublished paper, University of Washington, January 2020.
The authors randomly introduced loss-framed financial incentives in a nationwide field experiment among 294 car dealers. Dealers randomized into loss-framed (but financially identical) contracts sold 5% fewer vehicles than control dealers, generating a revenue loss of $45 million over 4 months. Interestingly, loss-framing did ‘work’ in the sense that it induced workers to take actions to reduce the chances of incurring a loss. However, this harmed the company because of a multi-tasking problem: dealers switched their efforts away from car models with lower bonuses attached to them.
Agarwal, Sumit, Ximeng Fang, Lorenz Goette, Tien Foo Sing, Samuel Schoeb, Verena Tiefenbeck, Thorsten Staake, Davin Wang “The Role of Goals in Motivating Behavior: Evidence from a Large-Scale Field Experiment on Resource Conservation” unpublished paper, University of Bonn, 2017.
The authors randomly assigned feedback and goals for water use to consumers taking showers. No financial incentives are used, but users were (randomly) given real-time information on the amount of water used during a shower, and assigned random goals for consumption per shower. Both feedback and goals reduce water consumption substantially. Goals work best when they are neither too easy nor too hard. Other patterns in the data suggest that users get direct utility from satisfying the goal that has been assigned to them.
Wage Fairness among Employees:
Hjort, Jonas, Xuan Li and Heather Sarsons. “Across-Country Wage Compression in Multinationals” NBER Working Paper No. 26788, February 2020.
Many employers link wages at the firm’s establishments outside of the home region to the level at headquarters. This is hard to explain without reference to employees’ concerns with horizontal equity. This paper shows that these concerns have real effects: When minimum wage increases in another country cause the company to raise its local wage, the company fires more low-skill workers and hires fewer new workers.
Dube, Arindrajit, Laura Giuliano, and Jonathan Leonard. Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior NBER Working Paper No. 24906, August 2018.
This paper analyzes how separations responded to arbitrary differences in own and peer wages at a large U.S. retailer. Regression-discontinuity estimates imply large causal effects of peer wages on separations, mostly driven by comparisons with higher-paid peers.
Income Effects:
Boppart, Timo and Per Krusell, "Labor Supply in the Past, Present, and Future: A Balanced-Growth Perspective," Journal of Political Economy 128, no. 1 (January 2020): 118-157.
Across countries and over a span of 170 years, this paper shows that average hours worked per worker have been falling steadily by a little below 0.5% per year. It argues that the best explanation of this trend is a negative income effect of real wages on labor supply, which is large enough to more than counterbalance the positive incentive effects of growing real wages.
Selection and Training
Formal vs Informal Recruiting:
Friebel, Guido Matthias Heinz, Mitchell Hoffman, and Nick Zubanov. 2020 What Do Employee Referral Programs Do? A Firm-level Randomized Controlled Trial. NBER Working Paper 25920
Employee referral programs (ERPs) are randomly introduced in a grocery chain. Overall, ERPs reduce attrition by roughly 15% and reduce labor costs by almost 3%. This is mainly because all workers (not just the referred ones) stay longer in treated than control stores, even in stores where no referrals are made. The most promising explanation of these indirect effects is that workers value being involved in hiring.
Avoiding Bias-- Blind hiring procedures
Neumark, David. 2020.
Age Discrimination in Hiring: Evidence from Age-Blind vs.
Non-Age-Blind Hiring Procedures
NBER working paper no. 26623
Hiding older worker’s ages in job applications raises their chances of their getting an interview, but these workers then encounter much lower job offer rates after their interviews (which reveal their age). The author interprets this evidence as strongly consistent with age discrimination.
Monopsony Wage-Setting:
Dube, Arindrajit, Jeff Jacobs, Suresh Naidu, and Siddharth Suri. 2020. "Monopsony in Online Labor Markets." American Economic Review: Insights, 2 (1): 33-46.
The authors estimate labor supply elasticities to MTurk employers of about 0.1. These low values are surprising in view of the seemingly low switching and search costs of on-demand labor markets.
Dube, Arindrajit, Laura Giuliano, and Jonathan Leonard. Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior NBER Working Paper No. 24906, August 2018.
This paper analyzes how separations responded to arbitrary differences in own and peer wages at a large U.S. retailer. When raises are similar across peers within the workplace –this eliminating peer effects-- separations are quite insensitive to wages, suggesting that search frictions and monopsony are relevant in this low-wage sector.
Training:
Garicano, Luis, and Luis Rayo. 2017. "Relational Knowledge Transfers." American Economic Review, 107 (9): 2695-2730.
This theoretical paper shows that long apprenticeship periods with low pay can allow profit-maximizing firms to provide general-skills training to workers. The employer rationally delays the transfer of knowledge to prevent the apprentice from leaving before the employer has recouped its training costs. As a result, training periods are excessively long, relative to a world in which employers and workers can write binding training contracts.
John P. Papay, Eric S. Taylor, John H. Tyler and Mary E. Laski. “Learning Job Skills from Colleagues at Work: Evidence from a Field Experiment Using Teacher Performance Data” American Economic Journal: Economic Policy 2020, 12(1): 359–388.
Asking teachers with high and low levels of a particular skill to work together on skill improvement improves student by 0.12 standard deviations in the low-skilled teachers’ classrooms. This field experiment shows that information exchange between workers is an important component of the job training process.
Tournaments
Prize Structure:
Joshua Graff Zivin and Elizabeth Lyons The Effects of Prize Structures on Innovative Performance NBER working paper no. 26737, February 2020.
When the object is to produce successful innovations, this field experiment in a large life sciences company shows that a winner-takes-all prize is more effective than the same amount of prize money shared across the ten best innovations.
Teams
Battiston, Diego, Jordi Blanes i Vidal, and Thomas Kirchmaier, Thomas (2017) Is distance dead? Face-to-face communication and productivity in teams. CEP Discussion Papers, number 1473.
The Birmingham police department’s call response center eliminated face-to-face communication between handlers and dispatchers. In contrast to the results from Bloom et al.’s (2015) CTrip study, Battiston et al. found that eliminating face-to-face interaction between workers substantially reduced productivity. The effect is stronger for urgent and complex tasks, and in high pressure conditions.
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.