Behavioral and personnel economics

Articles in behavioral economics discuss the emotional and cognitive factors that influence the decisions of actors, in particular employers and employees. Personnel economics analyzes the internal organizational strategy of the firm and the human resource management practices chosen to pursue that strategy.

  • 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

    Karine Nyborg, May 2014
    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.
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  • How should teams be formed and managed?

    How teams are chosen and how they are compensated can determine how successfully they solve problems and benefit the firm

    Hideo Owan, August 2014
    The keys to effective teamwork in firms are (1) carefully designed team-formation policies that take into account what level of diversity of skills, knowledge, and demographics is desirable and (2) balanced team-based incentives. Employers need to choose policies that maximize the gains from teamwork through task coordination, problem solving, peer monitoring, and peer learning. Unions and labor market regulations may facilitate or hinder firms’ attempts at introducing teams and team-based incentives.
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  • Fairness and motivation

    Fair treatment creates incentives, and is beneficial for workers and the firm

    Armin Falk, September 2014
    How do firms motivate their employees to be productive? The conventional wisdom is that workers respond to monetary incentives—“Pay them more and they will work harder.” However, a large and growing body of empirical evidence from laboratory and field experiments, surveys, and observational data, as well as neuroeconomic research, suggests that workers’ perceptions of fairness and trust are also key drivers of their work effort. Treating employees with respect is not only ethically warranted, it can create positive economic outcomes for both the worker and the firm.
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  • Unemployment and happiness

    Successful policies for helping the unemployed need to confront the adverse effects of unemployment on feelings of life satisfaction

    Rainer Winkelmann, October 2014
    Many studies document a large negative effect of unemployment on happiness. Recent research has looked into factors related to impacts on happiness, such as adaptation, social work norms, social capital, religious beliefs, and psychological resources. Getting unemployed people back to work can do more for their happiness than compensating them for doing nothing. But not all unemployed people are equally unhappy. Understanding the differences holds the key to designing effective policies, for helping the unemployed back into work, and for more evenly distributing the burden of unemployment resulting from economic restructuring.
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  • Happiness and the emigration decision

    Happy people are an asset to society, and happiness may be a determinant of emigration

    Artjoms Ivlevs, October 2014
    Happy people are healthier and more creative, productive, and sociable. Because of these positive effects of happiness, it is in the interest of countries to attract and retain happy people. With respect to the decision to migrate, the central question becomes whether people who are happier and more satisfied with their lives are more or less likely to migrate. The evidence so far is mixed. Correlational studies find that prospective migrants are less happy than people who are not intending to migrate, while one study controlling for reverse causality suggests that the desire to migrate increases with life satisfaction.
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  • Late-life work and well-being

    Flexible retirement may be one solution to the challenges of unemployment, aging populations, and public pension burdens

    Carol Graham, November 2014
    Flexible work time and retirement options are a potential solution for the challenges of unemployment, aging populations, and unsustainable pensions systems around the world. Voluntary part-time workers in Europe and the US are happier, experience less stress and anger, and are more satisfied with their jobs than other employees. Late-life workers, meanwhile, have higher levels of well-being than retirees. The feasibility of a policy that is based on more flexible work arrangements will vary across economies and sectors, but the ongoing debate about these multi-tiered challenges should at least consider such arrangements.
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  • Relative deprivation and individual well-being

    Low status and a feeling of relative deprivation are detrimental to health and happiness

    Xi Chen, April 2015
    People who are unable to maintain the same standard of living as others around them experience a sense of relative deprivation that has been shown to reduce feelings of well-being. Relative deprivation reflects conditions of worsening relative poverty despite striking reductions in absolute poverty. The effects of relative deprivation explain why average happiness has been stagnant over time despite sharp rises in income. Consumption taxes on status-seeking spending, along with official and traditional sanctions on excess consumption and redistributive policies may lessen the negative impact of relative deprivation on well-being.
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  • How effective are financial incentives for teachers?

    Linking teacher pay to student performance has become popular, but evidence on its effectiveness is mixed

    Scott A. Imberman, June 2015
    Concerns about poor student performance have led schools to diverge from traditional teacher compensation and base a portion of pay on student outcomes. In the US, the number of school districts adopting such performance-based financial incentives has increased by more than 40% since 2004. Evidence on individual incentives in developed countries is mixed, with some positive and some negligible impacts. There is less evidence for developing countries, but several studies indicate that incentives can be highly effective and far cheaper to implement. Innovative incentive mechanisms such as incentives based on relative student performance show promise.
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  • High involvement management and employee well-being

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

    Petri Böckerman, July 2015
    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.
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  • Goal setting and worker motivation

    Individual work goals can increase a worker’s performance, but they need to be chosen wisely

    Sebastian J. Goerg, August 2015
    Employers want motivated and productive employees. Are there ways to increase employee motivation without relying solely on monetary incentives, such as pay-for-performance schemes? One tool that has shown promise in recent decades for improving worker performance is setting goals, whether they are assigned by management or self-chosen. Goals are powerful motivators for workers, with the potential for boosting productivity in an organization. However, if not chosen carefully or if used in unsuitable situations, goals can have undesired and harmful consequences. Goals are a powerful tool that needs to be applied with caution.
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