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More About This Title Personnel Economics in Practice
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Michael Gibbs is Clinical Professor of Economics at the University of Chicago Graduate School of Business. Gibbs earned his PhD in Economics from the University of Chicago. He is a leading empirical researcher in the field of personnel economics, and has received awards for excellence in research and teaching.
English
ABOUT THE AUTHORS iii
PREFACE v
ACKNOWLEDGMENTS ix
PART ONE SORTING AND INVESTING IN EMPLOYEES 1
CHAPTER 1 SETTING HIRING STANDARDS 3
An Example: Hiring RiskyWorkers 3
New Hires as Options 3
Analysis 5
A Counterargument 7
Setting Hiring Standards 9
Balancing Benefits Against Costs 9
Foreign Competition 11
The Method of Production 12
How Many Workers to Hire? 15
Other Factors 16
Making Decisions with Imperfect Information 17
Make a Decision Independent of Analysis 17
Estimate the Relevant Information 17
Summary 19
Study Questions 20
References 21
Further Reading 21
Appendix (available online)
CHAPTER 2 RECRUITMENT 22
Screening Job Applicants 24
Credentials 25
Learning a Worker’s Productivity 26
For Whom Is Screening Profitable? 28
Probation 30
Signaling 32
Who Pays and Who Benefits? 35
Examples 35
Signaling More Formally: Separating and Pooling Equilibria 36
Which Type of Firm Is More Likely to Use Signaling? 38
Summary 38
Study Questions 40
References 40
Further Reading 41
Appendix (available online)
CHAPTER 3 INVESTMENT IN SKILLS 42
Matching 44
Investments in Education 45
Effects of Costs and Benefits 47
Was Benjamin Franklin Correct? 49
Investments in On-the-Job Training 51
General versus Firm-Specific Human Capital 54
Who Should Pay for Training? 56
Implications of On-the-Job Training 61
Rent Sharing and Compensation 63
Summary 66
Study Questions 67
References 68
Further Reading 68
Appendix (available online)
CHAPTER 4 MANAGING TURNOVER 69
Is Turnover Good or Bad? 69
Importance of Sorting 70
Technical Change 70
Organizational Change 71
Hierarchical Structure 71
Specific Human Capital 71
Retention Strategies 72
Reducing Costs of Losing Key Employees 73
Embracing Turnover 75
Bidding for Employees 76
Raiding Other Firms: Benefits and Pitfalls 76
Offer Matching 80
Layoffs and Buyouts 82
Who to Target for Layoffs 83
Buyouts 86
Summary 90
Study Questions 91
References 91
Further Reading 92
Appendix (available online)
PART TWO ORGANIZATIONAL AND JOB DESIGN 93
CHAPTER 5 DECISION MAKING 95
The Organization of an Economy 95
Markets as Information Systems 96
Markets as Incentive Systems 98
Markets and Innovation 98
Benefits of Central Planning 98
The Market as Metaphor for Organizational Design 100
Benefits of Centralization 102
Economies of Scale or Public Goods 102
Better Use of Central Knowledge 103
Coordination 103
Control 104
Benefits of Decentralization 105
Specific versus General Knowledge 105
Other Benefits of Decentralization 107
Decision Management and Control 108
Decision Making as a Multistage Process 108
Creativity versus Control 110
Investing in Better-Quality Decision Making 118
Summary 121
Study Questions 123
References 123
Further Reading 124
Appendix (available online)
CHAPTER 6 ORGANIZATIONAL STRUCTURE 125
Types of Organizational Structures 126
Hierarchy 126
Functional Structure 128
Divisional Structure 129
Matrix or Project Structure 133
Network Structure 136
Which Structure Should a Firm Use? 139
Coordination 140
Two Types of Coordination Problems 140
Coordination Mechanisms 142
Implementation 145
Span of Control and Number of Levels in a Hierarchy 145
Skills, Pay, and Structure 148
Evolution of a Firm’s Structure 149
Summary 150
Study Questions 152
References 153
Further Reading 154
CHAPTER 7 JOB DESIGN 155
Patterns of Job Design 155
Optimal Job Design: Skills, Tasks, and Decisions 159
Multiskilling and Multitasking 159
Decisions 163
Complementarity and Job Design 164
When to Use Different Job Designs 165
Taylorism 166
Factors Pushing Toward Taylorism or Continuous Improvement 168
Intrinsic Motivation 171
Summary 173
Study Questions 175
References 176
Further Reading 177
Appendix (available online)
CHAPTER 8 ADVANCED JOB DESIGN 178
Teams 179
Group Decision Making 179
Free Rider Effects 179
When to Use Teams 180
Other Benefits of Team Production 181
Implementation of Teams 186
Team Composition 187
Effects of Information Technology 190
Effects on Organizational Structure 190
Effects on Job Design 193
High-Reliability Organizations 196
Summary 198
Study Questions 199
References 200
Further Reading 200
Appendix (available online)
PART THREE PAYING FOR PERFORMANCE 201
CHAPTER 9 PERFORMANCE EVALUATION 207
Purposes of Performance Evaluation 208
Ways to Evaluate Performance 208
Quantitative Performance Measurement 208
Risk Profile 209
Distortion 210
Manipulation 214
Match of the Performance Measure to Job Design 215
Subjective Evaluation 218
Why Use Subjective Evaluations? 219
Reduce Distortion and Manipulation 220
Practical Considerations 222
Summary 227
Study Questions 228
References 229
Further Reading 229
CHAPTER 10 REWARDING PERFORMANCE 230
How Strong Should Incentives Be? 233
Intuition 233
Imperfect Evaluations and Optimal Incentives 237
Summary: How Strong Should Incentives Be? 242
Paying for Performance: Common Examples 243
Rewards or Penalties? 243
Lump Sums, Demotions, or Promotions 246
Caps on Rewards 249
Applications 251
Profit Sharing and ESOPs 251
Organizational Form and Contracting 253
Motivating Creativity 254
Summary 255
Study Questions 256
References 257
Further Reading 257
Appendix (available online)
CHAPTER 11 CAREER-BASED INCENTIVES 258
Promotions and Incentives 261
Should Promotions Be Used as an Incentive System? 261
Promotion Rule: Tournament or Standard? 262
How Do Promotions Generate Incentives? 267
Advanced Issues 271
Evidence 275
Career Concerns 276
Seniority Pay and Incentives 276
Practical Considerations 278
Summary 279
Study Questions 281
References 282
Further Reading 282
Appendix (available online)
CHAPTER 12 OPTIONS AND EXECUTIVE PAY 284
Employee Stock Options 285
Stock Options–A Brief Overview 285
Should Firms Grant Employees Options? 286
Options as Incentive Pay 288
Executive Pay 293
What Is the Most Important Question? 293
Executive Pay for Performance 295
Other Incentives and Controls 297
Do Executive Incentives Matter? 299
Summary 302
Employee Stock Options 302
Executive Pay 303
Study Questions 303
References 304
Further Reading 304
Appendix (available online)
PART FOUR APPLICATIONS 307
CHAPTER 13 BENEFITS 309
Wages versus Benefits 309
Why Offer Benefits? 312
Cost Advantage 312
Value Advantage 313
Government Mandate 315
Implementation of Benefits 316
Improving Employee Sorting 316
Cafeteria Plans 317
Pensions 319
Paid Time Off 327
Summary 329
Study Questions 331
References 331
Further Reading 332
CHAPTER 14 ENTREPRENEURSHIP AND INTRAPRENEURSHIP 333
Entrepreneurship 334
The Choice to Become an Entrepreneur 335
Intrapreneurship 344
Internal Markets 345
Creativity versus Control 347
Recruiting 347
Motivating Creativity 348
Speed of Decision Making 350
Reducing Bureaucracy 350
Continuous Improvement 351
Summary 353
Study Questions 353
References 354
Further Reading 355
Appendix (available online)
CHAPTER 15 THE EMPLOYMENT RELATIONSHIP 356
Employment as an Economic Transaction 356
Perfect Competition 356
Imperfect Competition 357
Complex Contracting 358
Summary 361
Communication between Management andWorkers 362
Communication from Management to Workers 362
Communication from Workers to Management 364
The Optimal Level of Worker Consultation 366
Improving Cooperation 370
From the Prisoner’s Dilemma to Employment 372
Reputation and the Employment Relationship 374
Investing in Reputation 375
Summary 381
Personnel Economics in Practice 381
Study Questions 383
References 383
Further Reading 384
Appendix (available online)
GLOSSARY 385
INDEX 393
