Evidence-based policy making

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.

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.

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 are generated.

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.

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.

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.

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.

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.