Employers can use laboratory experiments to
structure payment policies and incentive schemes
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
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
Workers care about employers’ social causes, but
the public sector does not attract particularly motivated employees
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
Gender quotas for women on boards of directors
improve female share on boards but firm performance effects are mixed
Arguments for increasing gender diversity on
boards of directors by gender quotas range from ensuring equal opportunity
to improving firm performance. The introduction of gender quotas in a number
of countries has increased female representation on boards. Current research
does not justify gender quotas on grounds of economic efficiency. In many
countries the number of women in top executive positions is limited, and it
is not clear from the evidence that quotas lead to a larger pool of female
top executives, who are the main pipeline for boards of directors. Thus,
other supplementary policies may be necessary if politicians want to
increase the number of women in senior management positions.
Firms need to tailor their allocation of talent
and responsibility, and their managerial structure, to fit their competitive
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.
What evidence exists on whether bad bosses damage workers’ performance, or good bosses enhance it?
A good boss can have a substantial positive effect on the productivity of a typical worker. While much has been written about the peer effects of working with good peers, the effects of working with good bosses appear much more substantial. A good boss can enhance the performance of their employees and can lower the quit rate. This may also be relevant in situations where it is challenging to employ incentive pay structures, such as when quality is difficult to observe. As such, firms should invest sufficiently in the hiring of good bosses with skills that are appropriate to their role.
Challenging jobs and work incentives induce
workers to use their skills but make life difficult for managers
Organizational characteristics and management
styles vary dramatically both across and within sectors, which leads to huge
variation in job design and complexity. Complex jobs pose a challenge for
management and workers; an incentive structure aimed at unlocking workers’
potential can effectively address this challenge. However, the heterogeneity
of job complexity and the inherent difficulty in devising a correct set of
incentives may result in misalignment between job demands and incentivized
behaviors, and in complaints by employers about the lack of skilled
What can we learn about discrimination in hiring?
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.