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Personnel economics

Personnel economics is the application of economic and mathematical approaches to traditional topics in the study of human resource management like compensation, hiring practices, pay and incentive structures, teamwork, as well as worker empowerment and motivation.

Workers are mostly paid a fixed wage in exchange for their services; they may also receive incentive pay based on their performance. But, why and by how much should pay vary across employees within firms? Should workers be involved in setting their own working hours and wages? Are bonuses or penalties better tools for worker motivation? Do people work harder when their values are more closely aligned with those of the business? Is having a good boss important for worker performance? Is multiple job-holding, or “moonlighting,” the sign of a failing society or are there more positive career outcomes?

The study of personnel economics can provide policymakers and managers with the guidance that enables them to make the best choices for their firms. Articles on these topics and more are available in our behavioral and personnel economics subject area while a selection of articles is listed below.

  • Does working from home work in developing countries?

    Infrastructure constraints are major obstacles for working from home in developing countries

    Mariana Viollaz, December 2022
    Work-from-home possibilities are lower in developing than in developed countries. Within countries, not all workers have equal chances of transitioning from the usual workplace to work-from-home. Moreover, infrastructure limitations and lack of access to certain services can limit the chances of effectively working from home. Having a home-based job can affect, positively or negatively, work–life balance, levels of job satisfaction and stress, and productivity. The differential chances of working from home may end up increasing the levels of income inequality between workers who can and those who cannot work from home.
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  • Incentivizing sleep?

    Insufficient sleep affects employment and productivity

    Joan Costa-Font, November 2022
    Spending time sleeping not only improves individuals’ well-being, but it can influence employment outcomes and productivity. Sleep can be disrupted by company schedules and deadlines, extended working times, and several individual and household decisions. Labor market regulation and corporate strategies should factor in the immediate effect of insufficient sleep on employee fatigue and cognitive performance, and the associated effects on employment disruption and productivity loss. Sleep can be influenced by “sleep friendly” employment regulations, technology nudges, monetary incentives, and subsidies for sleeping.
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  • Does employee ownership improve performance? Updated

    Employee ownership generally increases firm performance and worker outcomes

    Douglas Kruse, May 2022
    Employee ownership has attracted growing attention for its potential to improve economic outcomes for companies, workers, and the economy in general, and help reduce inequality. Over 100 studies across many countries indicate that employee ownership is generally linked to better productivity, pay, job stability, and firm survival—though the effects are dispersed and causation is difficult to firmly establish. Free-riding often appears to be overcome by worker co-monitoring and reciprocity. Financial risk is an important concern but is generally minimized by higher pay and job stability among employee owners.
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  • Presenteeism at the workplace

    Working when sick is a widespread phenomenon with serious consequences for workers, firms, and society

    Claus Schnabel, May 2022
    Many workers admit that at times they show up for work even though they feel sick. This behavior, termed “presenteeism,” is puzzling since most workers do not incur financial losses when staying home sick. The various reasons behind presenteeism are person-related (e.g. individuals’ health or job attitude) or work-related (e.g. job demands and constraints on absence from work). Working when sick can have positive and negative consequences for workers’ performance and health, but it also affects co-workers’ well-being and firms’ productivity. There are various strategies as to how firms can address presenteeism.
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  • Performance-related pay and productivity Updated

    Do performance-related pay and financial participation schemes have an effect on firms’ performance?

    A growing number of firms offer compensation packages that link pay to performance. The aim is to motivate workers to be more efficient while also increasing their attachment to the company, thereby reducing turnover and absenteeism. The effects of performance-related pay on productivity depend on the scheme type and design, with individual incentives showing the largest effect. Governments often offer tax breaks and financial incentives to promote performance-related pay, though their desirability has been questioned due to large deadweight losses involved. The diffusion of remote work will increase the relevance of performance-related pay.
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  • Noncompete agreements in employment contracts

    Can regulation ensure that noncompete agreements benefit both workers and firms?

    Kurt Lavetti , September 2021
    Labor market institutions that may weaken workers’ bargaining leverage have received increased scrutiny in recent years. One example is noncompete agreements, which prevent workers from freely moving across employers, potentially weakening earnings growth. New data sources and empirical evidence have led policymakers to consider sharp restrictions on their use, especially among lower-income workers. These restrictions take many different forms, each of which has unique tradeoffs between the desire to protect workers while allowing firms to use noncompetes in cases where they may create social value.
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