Firms can benefit by hiring employee referred
candidates; however, there are potential drawbacks that must be
Companies frequently hire new employees based on
referrals from existing employees, who often recommend friends or family
members. There are numerous possible benefits from this, such as lower
turnover, possibly higher productivity, lower recruiting costs, and
beneficial commonalities related to shared employee values. On the other
hand, hiring through employee referrals may disadvantage under-represented
minorities, entail greater firm costs in the form of higher wages, lead to
undesirable commonalities, and reflect nepotism. A growing body of research
explores these considerations.
Comparisons to others’ pay and to one’s own past
earnings can affect willingness to work and effort on the job
Recent studies show that even irrelevant
relative pay information—earnings compared to the past or to
others—significantly affects workers’ willingness to work (labor supply) and
effort. This effect stems mainly from those whose pay compares unfavorably;
accordingly, earning less compared to others or less than in the past
significantly reduces one’s willingness to work and effort exerted on the
job. Comparing favorably, however, has mixed effects—with usually no effect
on effort, but positive or no effects on labor supply. Understanding when
relative pay increases labor supply and effort can thus help firms devise
optimal payment structures.
The choice of reference group crucially
determines subjective deprivation and thus affects labor market behavior
Why do different population groups (e.g. rural
vs. urban, youth vs. elderly and men vs. women) experience the same
objective labor status differently? One hypothesis is that people are more
concerned with relative deprivation than objective deprivation and they
value their own status relative to the status of their peers—the reference
group. One way to test this hypothesis in the labor market is to measure
individual differences in labor status while controlling for characteristics
that define population groups. This measure is called “relative labor
deprivation” and can help policymakers to better understand how labor claims
Secondary and higher education are windows of
opportunity for boosting students’ life skills
Life skills, sometimes referred to as
noncognitive skills or personality traits (e.g. conscientiousness or locus
of control—the belief to influence events and their outcomes), affect labor
market productivity. Policy makers and academics are thus exploring whether
such skills should be taught at the high school or college level. A small
portfolio of recent studies shows encouraging evidence that education could
strengthen life skills in adolescence. However, as no uniform approach
exists on which life skills are most important and how to best measure them,
many important questions must be answered before life skill development can
become an integral part of school curricula.
The variation of racial wage gaps across and
within groups requires differing policy solutions
In many developed countries, racial and ethnic
minorities are paid, on average, less than the native white majority. While
racial wage differentials are partly the result of immigration, they also
persist for racial minorities of second and further generations. Eliminating
racial wage differentials and promoting equal opportunities among citizens
with different racial backgrounds is an important social policy goal.
Inequalities resulting from differences in opportunities lead to a waste of
talent for those who cannot reach their potential and to a waste of
resources if some people cannot contribute fully to society.
Higher levels of air pollution reduce worker productivity, even when air quality is generally low
Environmental regulations are typically considered to be a drag on the economy. However, improved environmental quality may actually enhance productivity by creating a healthier workforce. Evidence suggests that improvements in air quality lead to improvements in worker productivity across a range of sectors, including agriculture, manufacturing, and the service sectors. These effects also arise at levels of air quality that are below pollution thresholds in countries with the highest levels of environmental regulation. The findings suggest a new approach for understanding the consequences of environmental regulations.
Looks matter and can tip the scales between the right and left
Good-looking political candidates win more votes around the world. This holds for both male and female candidates. Candidate appearance may be especially important for uninformed voters, as it is easy to observe. Voters may favor good-looking candidates because they expect them to be more competent or persuasive, but it can also be that voters simply enjoy laying their eyes on beautiful politicians. As politicians on the right have been deemed more attractive in Europe, the US, and Australia, the importance of beauty in politics favors conservative parties. A related finding is that voters use beauty as a cue for conservatism.
Harnessing the benefits of diversity is essential for
encouraging entrepreneurship in the transition region
Entrepreneurship is an important lever for spurring transition
in the economies of the former Soviet Union and Central and Eastern Europe. Utilizing
diversity, in terms of religion or gender, can positively affect entrepreneurial development.
Programs that encourage entrepreneurial initiatives (such as business start-ups) in culturally
diverse localities should rank high on the policy agenda. Prompting women to start a business,
along with female-friendly measures (including targeted legislation), can positively affect
entrepreneurial behaviour and the performance of existing enterprises.
GDP summarizes only one aspect of a country’s condition; other measures in addition to GDP would be valuable
Gross domestic product (GDP) is the key indicator of the health of an economy and can be easily compared across countries. But it has limitations. GDP tells what is going on today, but does not inform about sustainability of growth. It does not measure happiness, so residents can be dissatisfied even when GDP is rising. GDP does not consider environmental factors or reflect what individuals do outside paid employment. It might increase in times of military conflicts and after natural disasters or terrorist acts, as the loss of property is not counted. Hence, complementary measures may help to show a more comprehensive picture of an economy.
Low coverage and greater fragmentation can limit
the benefits of trade unions
Countries with strong industrial relations
institutions and well-established social dialogue often perform well in
terms of economic growth and social cohesion. The weak and fragmented
bargaining and low levels of union coverage in Central and Eastern Europe
(CEE) raise concerns about these countries’ potential to maintain
competitiveness, tackle demographic and macroeconomic challenges, and catch
up with Western European economic and social standards. There is evidence
that unions in CEE continue to protect their members and generate wage
premiums, despite their institutional weaknesses.