Summary of all lectures & articles of the course Personnel Economics (EBM678A05). It's a mandatory course of the MSc HRM that is offered by the Rijksuniversiteit Groningen (RUG) / University of Groningen.
Lecture 1 – Introduction & hiring and decision making (ch. 1&5)
Hiring personnel:
Maximize the ratio Q/W
- Q = productivity
- W = wage (total wage costs, monetary and non-monetary)
How do you know Q and W?
A-symmetric information
Measuring Q
- Through performance management (lecture 4)
- Temporary contracts
- Selection devices like credentials (lecture 2) or other, i.e. assessment centres
1) Temporary contracts:
Offer, let’s say 1 year contract, with relatively low wage
Promise to offer tenure with relatively high wage if new employee satisfies performance
levels
Next to probation you also have to do something with the wages that you pay probation
shows how productive a new employee is (Q). Start paying low wages during probation to
have underperformers not being interested (if those people would apply low wage &
fired after probation, no advantage). Low wages during probation are more attractive for
high performers, because after the probation period they will get a permanent contract and
get relatively higher wage (which they cannot find anywhere else on the labour market)
2) Making use of credentials
Examples: academic degrees, CV, recommendation letters, assessment centre, etc.
More information in lecture 2
Decision making:
Every decision has 4 possible outcomes (e.g. covid-19 tests):
1) Positive
2) Negative
3) Positive that should have been negative
4) Negative that should have been positive
False positive error = accepting an unprofitable project (produce, but line is unprofitable)
False negative error = rejecting a profitable project (not produce, but line is profitable)
Relationship between false positives and negatives
, Structure can be made flat with second opinions (rather than putting someone above the other, the
firm can simply require that every project reviewed by someone is also reviewed by the other)
Should I use a hierarchical structure or flat structure when hiring people? depends on
the distribution of the revenues and on job design (of the job that is open for hiring)
, Lecture 2 – Investment in skills & managing turnover (ch. 3&4)
Van der Meer (2011); Wang et al. (2009); Glebbeek & Bax (2004)
Investment in education:
C = direct costs
F = opportunity costs
K = income after investment
H = income without investment
r = interest rate
t = time
Education & on-the-job training
Investing in Human Capital:
- Increases in costs reduce optimal investment
- College fees, forgone earning, lost productivity
- People with good alternative invest less
Investment in skills:
The employee pays, i.e. by a lower wage
The employee herself decides about the investment
Investments in FSHC will generally be shared by both, to reduce temptation to renegotiate
A special case of a more general issue: relationship-specific investments
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