Human resource management practices

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Do responsible employers attract responsible employees?

The cost of a firm’s commitment to CSR may be offset by its appeal to motivated employees who work harder for lower wages

10.15185/izawol.17 17 Nyborg, K

by Karine Nyborg

Survey and register data indicate that many employees prefer a socially responsible employer and will accept a lower wage to achieve this. Laboratory experiments support the hypothesis that socially responsible groups are more productive than others, partly because they attract cooperative types, partly because initial cooperation is reinforced by group dynamics. Overall, the findings indicate corporate social responsibility may have cost advantages for firms.

Gender diversity in teams

Greater representation of women on decision-making teams may better represent women’s preferences but may not help economic performance

10.15185/izawol.29 29 Azmat, G

by Ghazala Azmat

Women’s representation on corporate boards, political committees, and other teams is increasing, in part because of legal mandates. Understanding the effects of gender diversity in terms of economic performance is important to assess the impact of these changes. Data on team dynamics and gender differences in preferences (risk-taking behavior, taste for competition, prosocial behavior) show how gender composition influences group decision-making and subsequent performance through channels such as investment decisions, internal management, corporate governance, and social responsibility.

Anonymous job applications and hiring discrimination

Anonymous job applications can level the playing field in access to jobs but cannot prevent all forms of discrimination

10.15185/izawol.48 48 Rinne, U

by Ulf Rinne

The use of anonymous job applications to combat hiring discrimination is gaining attention and interest. Results from a number of field experiments in European countries (France, Germany, the Netherlands, and Sweden are considered here) shed light on their potential to reduce some of the discriminatory barriers to hiring for minority and other disadvantaged groups. But although this approach can achieve its primary aims, there are also some cautions to consider.

Correspondence testing studies

What can we learn about discrimination in hiring?

10.15185/izawol.58 58 Rooth, D

by Dan-Olof Rooth

Anti-discrimination policies play an important role in public discussions. However, identifying discriminatory practices in the labor market is not an easy task. Correspondence testing provides a credible way to reveal discrimination in hiring and provide hard facts for policies. The method involves sending matched pairs of identical job applications to employers posting jobs—the only difference being a characteristic that signals membership to a group.

Gender quotas on boards of directors

Little evidence that gender quotas for women on boards of directors improve firm performance

10.15185/izawol.7 7 Smith, N

by Nina Smith

Arguments for increasing gender diversity on boards of directors range from ensuring equal opportunity to improving firm performance, but the empirical results are mixed and often negative. Current research does not justify gender quotas on grounds of economic efficiency. Furthermore, in most countries the number of women qualified to join boards of directors is limited, and it is not clear from the evidence that quotas lead to a larger pool of qualified female candidates in the medium and long term.

Alternative dispute resolution

How different procedures might succeed in settling disputes

10.15185/izawol.71 71 Dickinson, D

by David L. Dickinson

Alternative dispute resolution procedures such as arbitration and mediation are the most common methods for resolving wage, contract, and grievance disputes, but they lead to varying levels of success and acceptability of the outcome depending on their design. Some innovative procedures, not yet implemented in the real world, are predicted to improve on existing procedures in some ways. But controlled tests of several procedures show that the simple addition of a nonbinding stage prior to binding dispute resolution can produce the best results in terms of cost (monetary and “uncertainty” costs) and acceptability.

Sexual orientation and labor market outcomes

Sexual orientation seems to affect job access and satisfaction, earning prospects, and interaction with colleagues

10.15185/izawol.111 111 Drydakis, N

by Nick Drydakis

Studies from countries with laws against discrimination on the basis of sexual orientation suggest that gay and lesbian employees report more incidents of harassment and are more likely to report experiencing unfair treatment in the labor market than are heterosexual employees. Gay men are found to earn less than comparably skilled and experienced heterosexual men. For lesbians, the patterns are ambiguous: in some countries they have been found to earn less than their heterosexual counterparts, while in others they earn the same or more. Both gay men and lesbians tend to be less satisfied with their jobs than their heterosexual counterparts.

Are workers motivated by the greater good?

Workers care about employers’ social causes, but the public sector does not attract particularly motivated employees

10.15185/izawol.138 138 Tonin, M

by Mirco Tonin

Employees show more commitment to an employer that promotes the greater good, and they work harder too. Moreover, many people are willing to give up some of their compensation to contribute to a social cause. Being able to attract a motivated workforce would be particularly important for the public sector, but this goal remains elusive. Indeed, there is evidence for the public sector that paying people more or underlining the career opportunities (as opposed to the social aspects) associated with public sector jobs is instrumental in attracting a more productive workforce, without having a negative impact on intrinsic motivation.

Who benefits from firm-sponsored training?

Firm-sponsored training benefits both workers and firms through higher wages, increased productivity and innovation

10.15185/izawol.145 145 Dostie, B

by Benoit Dostie

Workers participating in firm-sponsored training receive higher wages as a result. But given that firms pay the majority of costs for training, shouldn’t they also benefit? Empirical evidence shows that this is in fact the case. Firm-sponsored training leads to higher productivity levels and increased innovation, both of which benefit the firm. Training can also be complementary to, and enhance, other types of firm investment, particularly in physical capital, such as information and communication technology (ICT), and in organizational capital, such as the implementation of high-performance workplace practices.

Performance-related pay and labor productivity

Do pay incentives and financial participation schemes have an effect on a firm’s performance?

10.15185/izawol.152 152 Lucifora, C

by Claudio Lucifora

Many firms offer employees a remuneration package that links pay to performance as a means of motivation. It also improves efficiency and reduces turnover and absenteeism. The effects on productivity depend on the type of scheme employed (individual or group performance) and its design (commissions, piece-rate or sharing schemes). Individual incentives demonstrate the largest effect, while group or team incentives are smaller in magnitude. The case for government intervention through tax breaks and other financial incentives is highly debated due to differences across firms and the potential for economic inefficiencies.

High involvement management and employee well-being

Giving employees more discretion at work can boost their satisfaction and well-being

10.15185/izawol.171 171 Böckerman, P

by Petri Böckerman

A wide range of high involvement management practices, such as self-managed teams, incentive pay schemes, and employer-provided training have been shown to boost firms’ productivity and financial performance. However, less is known about whether these practices, which give employees more discretion and autonomy, also benefit employees. Recent empirical research that aims to account for employee self-selection into firms that apply these practices finds generally positive effects on employee health and other important aspects of well-being at work. However, the effects can differ in different institutional settings.

Sexual harassment in the workplace

Despite being illegal, costly, and an affront to dignity, sexual harassment is pervasive and challenging to eliminate

10.15185/izawol.188 188 Hersch, J

by Joni Hersch

Workplace sexual harassment is internationally condemned as sex discrimination and a violation of human rights, and more than 75 countries have enacted legislation prohibiting it. Sexual harassment in the workplace increases absenteeism and turnover and lowers workplace productivity and job satisfaction. Yet it remains pervasive and underreported, and neither legislation nor market incentives have been able to eliminate it. Strong workplace policies prohibiting sexual harassment, workplace training, and a complaints process that protects workers from retaliation seem to offer the most promise in reducing sexual harassment.

Should firms allow workers to choose their own wage?

Delegating the choice of wage setting to workers can lead to better outcomes for all involved parties

10.15185/izawol.223 223 Charness, G

by Gary B. Charness

Economists typically predict that people are inherently selfish; however, experimental evidence suggests that this is often not the case. In particular, delegating a choice (such as a wage) to the performing party may imbue this party with a sense of responsibility, leading to improved outcomes for both the delegating entity and the performing party. This strategy can be risky, as some people will still choose to act in a selfish manner, causing adverse consequences for productivity and earnings. An important issue to consider is therefore how to encourage a sense of responsibility in the performing party.

Profit sharing: Consequences for workers

Profit sharing, a formal “bonus” program based on firm profitability, can provide strong employee motivation if properly designed

10.15185/izawol.225 225 Fang, T

by Tony Fang

Profit sharing can lead to higher productivity and thus to higher firm profitability and employee wages. It may also enhance employment stability by enabling firms to adjust wages during downturns rather than lay off workers. While adoption of profit sharing increases earnings fluctuations, it also increases earnings growth in the longer term. As with any group incentive plan, profit sharing may result in some workers benefiting from the effort of others without themselves exerting greater effort (“free-rider problem”). However, there is evidence that in team-based production workplaces, profit sharing may reduce shirking and thus contribute to productivity growth.

Working-time autonomy as a management practice

Giving workers control over their working hours increases their commitment and benefits firm performance

10.15185/izawol.230 230 Beckmann, M

by Michael Beckmann

Allowing workers to control their work hours (working-time autonomy) is a controversial policy for worker empowerment, with concerns that range from increased shirking to excessive intensification of work. Empirical evidence, however, supports neither view. Recent studies find that working-time autonomy improves individual and firm performance without promoting overload or exhaustion from work. However, if working-time autonomy is incorporated into a system of family-friendly workplace practices, firms may benefit from the trade-off between (more) fringe benefits and (lower) wages but not from increased productivity.

Employee incentives: Bonuses or penalties?

Penalty contracts lead to higher productivity than performance-based bonuses, but at the cost of employer/staff relations

10.15185/izawol.234 234 Nosenzo, D

by Daniele Nosenzo

Firms regularly use incentives to motivate their employees to be more productive. However, often little attention is paid to the language used in employment contracts to describe these incentives. It may be more effective to present incentives as entitlements that can be lost by failing to reach a performance target, rather than as additional rewards that can be gained by reaching that target. However, emphasizing the potential losses incurred as a result of failure may entail hidden costs for the employer, as it may damage the trust relationship between a firm and its employees.

Internal hiring or external recruitment?

The efficacy of internal or external hiring hinges on other policies that a firm uses simultaneously

10.15185/izawol.237 237 DeVaro, J

by Jed DeVaro

Hiring is one of a firm’s most important decisions. When an employer fills a vacancy with one of its own workers (through promotion or lateral transfer), it forgoes the opportunity to fill the position with a new hire from outside the firm. Although both internal and external hiring methods are used, firms frequently have a bias favoring insiders. Internal and external hires differ in observable characteristics (such as skill levels), as do the employers making each type of hiring decision. Understanding those differences helps employers design and manage hiring policies that are appropriate for their organizations.

Do social interactions in the workplace lead to productivity spillover among co-workers?

Peer pressure can affect productivity and explain why workers’ wages and productivity depend on their co-workers’ productivity

10.15185/izawol.314 314 Cornelissen, T

by Thomas Cornelissen

Should one expect a worker’s productivity, and thus wage, to depend on the productivity of his/her co-workers in the same workplace, even if the workers carry out completely independent tasks and do not engage in team work? This may well be the case because social interaction among co-workers can lead to productivity spillover through knowledge spillover or peer pressure. The available empirical evidence suggests that, due to such peer effects, co-worker productivity positively affects a worker’s own productivity and wage, particularly in lower-skilled occupations.

Can lab experiments help design personnel policies?

Employers can use laboratory experiments to structure payment policies and incentive schemes

10.15185/izawol.318 318 Villeval, M

by Marie Claire Villeval

Can a company attract a different type of employee by changing its compensation scheme? Is it sufficient to pay more to increase employees’ motivation? Should a firm provide evaluation feedback to employees based on their absolute or their relative performance? Laboratory experiments can help address these questions by identifying the causal impact of variations in personnel policy on employees’ productivity and mobility. Although they are collected in an artificial environment, the qualitative external validity of findings from the lab is now well recognized.

Inequality and informality in transition and emerging countries

Higher inequality decreases capital accumulation and increases informality, which, in turn, raises the income of the poor

10.15185/izawol.325 325 Dell'Anno, R

by Roberto Dell'Anno

Higher inequality reduces capital accumulation and increases the informal economy, which creates additional employment opportunities for low-skilled and deprived people. Despite this positive feedback, informality raises problems for public finances and biases official statistics, reducing the effectiveness of redistributive policies. Policymakers should consider the links between inequality and informality because badly designed informality-reducing policies may increase inequality. However, convincing empirical evidence is still lacking and is usually limited to correlations rather than causal effects.

Are overhead costs a good guide for charitable giving?

Donors rely on overhead costs to evaluate charities, but that reliance creates disincentives for charities to hire skilled workers

10.15185/izawol.329 329 Meer, J

by Jonathan Meer

Charity rating agencies often focus on overhead cost ratios in evaluating charities, and donors appear to be sensitive to these measures when deciding where to donate. Yet, there appears to be a tenuous connection between this widely-used metric and a charity’s effectiveness. There is evidence that a focus on overhead costs leads charities to underinvest in important functions, especially skilled workers. To evaluate policies that regulate overhead costs, it is necessary to examine whether donors care about overhead costs, whether they are good measures of charity effectiveness, and what effects a focus on overhead costs has on charities.

The economics of employment tribunals

Understanding how employment tribunals make decisions can guide reforms of employment dispute settlement

10.15185/izawol.331 331 Latreille, P

by Paul Latreille

Employment tribunals or labor courts are responsible for enforcing employment protection legislation and adjudicating rights-based disputes between employers and employees. Claim numbers are high and, in Great Britain, have been rising, affecting both administrative costs and economic competitiveness. Reforms have attempted to reduce the number of claims and to improve the speed and efficiency of dealing with them. Balancing employee protection against cost-effectiveness remains difficult, however. Gathering evidence on tribunals, including on claim instigation, resolution, decision making, and post-tribunal outcomes can inform policy efforts.

Can firms oversee more workers with fewer managers?

Firms need to tailor their allocation of talent and responsibility, and their managerial structure, to fit their competitive situation

10.15185/izawol.333 333 Smeets, V

by Valerie Smeets

Managers are supervising more and more workers, and firms are getting flatter. However, not all firms have been keen on increasing the number of subordinates that their bosses manage (referred to as the “span of control” in human resource management), contending that there are limits to leveraging managerial ability. The diversity of firms’ organizational structure suggests that no universal rule can be applied. Identifying the factors behind the choice of firms’ internal organization is crucial and will help firms properly design their hierarchy and efficiently allocate scarce managerial resources within the organization.