The Future of Personnel Economics

Personnel economics has grown over the past 20 years to become a major branch of labour economics. Although much has been learned, many important questions remain. For example, are worker wage profiles dependent on individual attributes or is the firm more important in determining wage growth? Why are executives so highly paid and why does pay take the form that it does? How can cross-country differences in pay patterns be explained? Does variable pay provide better incentives than fixed hourly wages? Under which circumstances is one form of compensation used over another? These questions and others are investigated and some conjectures offered.     

WHY WAS UNEMPLOYMENT IN POSTWAR BRITAIN SO LOW?*

Why was Unemployment in Postwar Britain So Low? This paper takes a fresh look at the low unemployment in postwar Britain, which is seen as exceptional rather than the norm. During the 1950s and 1960s low unemployment was reconciled with stable inflation through the exercise of wage restraint. Yet the postwar settlement which underpinned this wage restraint also allowed the entrenchment of restrictive practices, which inevitably slowed the growth of productivity and the feasible real wage, thus contributing to Britain's relative economic decline.     

Directed Technical Change

For many problems in macroeconomics, development economics, labour economics, and international trade, whether technical change is biased towards particular factors is of central importance. This paper develops a simple framework to analyse the forces that shape these biases. There are two major forces affecting equilibrium bias: the price effect and the market size effect. While the former encourages innovations directed at scarce factors, the latter leads to technical change favouring abundant factors. The elasticity of substitution between different factors regulates how powerful these effects are, determining how technical change and factor prices respond to changes in relative supplies. If the elasticity of substitution is sufficiently large, the long run relative demand for a factor can slope up.
I apply this framework to develop possible explanations to the following questions: why technical change over the past 60 years was skill biased, and why the skill bias may have accelerated over the past 25 years? Why new technologies introduced during the late eighteenth and early nineteenth centuries were unskill biased? What is the effect of biased technical change on the income gap between rich and poor countries? Does international trade affect the skill bias of technical change? What are the implications of wage push for technical change? Why is technical change generally labour augmenting rather than capital augmenting?     

A Note on Efficiency Wage Theory and Principal–Agent Theory

Why are principal–agent models used in some circumstances and efficiency wage models in others? In this note, it is argued that efficiency wages provide incentives based on an evaluation of the agent's input, while the incentives analysed in principal–agent models rely on the agent's output. The choice between the two incentive schemes depends on the probability that the agent is caught shirking. Moreover, we demonstrate that a combination of input‐ and output‐related elements provides stronger incentives than payment schemes based on merely one of these elements. However, the combination requires a more complex labour contract involving an increased cost of writing the contract. The interaction between this transaction cost and a hiring cost is analysed.     

Dynamic coordinating non-equilibrium

Neo-Walrasian conceptualizations and DSGE models are incompatible with the emergence of coordination and discoordination in economic activity. While many conceptualizations stemming from the Austrian tradition are generally consistent with these fundamental problems, their process driven approach is hampered by the use of equilibrium constructs. This paper argues for the adoption of formal models that avoid this problem by addressing the following questions. Why should Austrian macroeconomists model? Where do models fit in with respect to pure and applied theory? How to model without equilibrium? To answer this final question I present a structure that aids in the construction and communication of such models.     

International commodity taxation in the presence of unemployment

In this paper, we evaluate the impact of commodity tax competition on welfare and employment under the destination and origin principles, when the labor market is imperfectly competitive owing to a binding fixed wage. Our main finding is that commodity taxation causes an employment externality whose signs may be opposite under the two principles. While tax competition leads to inefficient tax rates under both principles, we also prove that the origin principle guarantees lower unemployment and higher welfare when the fixed wage is high. Finally, we show that the employment externality still exists in a standard union model of wage determination.     

Financialization of the Economy and Income Inequality in China

The income gap between the financial sector and other sectors has been widening since the mid-1990s. Why do financiers in China earn more than others? We analyze this issue against the background of financialization of the economy. The year 1993 was a watershed year, in which China began the process of rapid financialization. Since 1993, the financial sector has become increasingly powerful, overshadowing other sectors. Evidence shows that the high income levels that exist in the financial sector are related to this process of financialization in China. Financialization influences income distribution in China through two channels: money issuance and liquidation of social capital. The labor market equilibrium of the financial sector and wage level determination are not naturally formed but constructed. The increasing income inequality between the financial sector and other sectors is a consequence of financialization of the economy in China.     

Men earn less under working time accounts: a puzzle?

In recent years more and more working time accounts (WTA) have been introduced. From a theoretical perspective both employers and employees benefit from such an instrument. Indeed, empirical studies show that life satisfaction of workers is larger under a WTA regime than under a non-WTA regime. However, more detailed investigations in this article reveal wages to be lower for men under WTA regimes. Why should men accept WTA when they earn less? Subgroup analyses show that these results are only valid for some groups of individuals. Our analysis allows us to deliver some explanations and to exclude other possible reasons. The major results are: (1) High-income workers suffer higher losses; (2) the shorter the compensation period of WTA systems the lower the wage reduction imposed by WTA; (3) the length of total working time does not seem to affect the link between WTA and wages but the length of overtime; (4) men accept wage losses from WTA if they can adjust actual to desired working hours.     

Excess supply equilibria

This paper addresses a fundamental problem in economic theory: How can there be equilibria of the economic system where some commodity is in excess supply, yet that commodity's relative price shows no tendency to fall? Of course, the principal example of such a phenomenon is an economy experiencing a prolonged period of involuntary unemployment of the labor force during which there is no significant change in the real wage.In the following pages, I shall describe a two-commodity, general equilibrium model that has a continuum of unemployment equilibria, one for any given unemployment rate. The important feature of this model is that workers establish their wage rates in an attempt to maximize expected utility. The information upon which these wage setting decisions are based is provided by actual labor market transactions.Despite the voluntary nature of the wage setting decision, I shall argue that each equilibrium of this economy exhibits involuntary unemployment in the Keynesian sense. For there will always be another equilibrium with a lower real wage, a higher level of employment, and at which (at least when workers are risk neutral) each worker achieves a higher level of expected utility.     

The Economics and Ethics of Minimum Wage Legislation

Recent empirical studies have led the economics profession to question the proposition that minimum wage legislation necessarily leads to greater unemployment. This paper extends the analysis of these studies by providing several theoretical reasons why these empirical results may reflect a larger truth. Moreover, it addresses a relatively neglected aspect of the minimum wage debate - its ethical dimensions. Specifically, do the elementary principles of economic justice mandate that employees who “play by the rules”, should earn a “living wage”? This paper argues that the minimum wage is a successful economic policy that is consistent with economic justice.     

Frictional wage dispersion with Bertrand competition: An assessment

I examine whether a version of the Cahuc et al. (2006) model can match the magnitude of wage dispersion, as measured by the ratio of the average and the lowest wage — the so-called mean-min ratio of Hornstein et al. (2011). I find that the workers? bargaining power is a crucial parameter: the mean-min ratio strictly decreases in the bargaining power up to a point near 1/2 and is essentially flat thereafter, generating the same amount of wage dispersion as the canonical wage ladder model, which is a special case of the CPVR model. Consequently, this model can yield large wage dispersion only for low bargaining power on the workers? side. I show that the share of job-to-job transitions with wage drops is decreasing in the bargaining power, calibrate the latter to the former, and demonstrate that the CPVR model generates an empirically plausible amount of wage dispersion. I also show that negative wages arise when workers have no bargaining power, and discuss the implications for the empirical findings of Postel-Vinay and Robin (2002b).     

The subversive nature of inequality: Subjective inequality perceptions and attitudes to social inequality

This paper shows that higher levels of perceived wage inequality are associated with a weaker (stronger) belief into meritocratic (non-meritocratic) principles as being important in determining individual wages. This finding is further corroborated using various complementary measures of individuals’ perception of the chances and risks associated with an unequal distribution of economic resources, such as their perception of the chances of upward mobility. I finally show that those individuals perceiving a high level of wage inequality also tend to be more supportive of redistributive policies and progressive taxation. Taken together, these findings suggest that high levels of perceived wage inequality do have the potential to undermine the legitimacy of market outcomes.     

The Henderson Question? The Melbourne Institute and 50 Years of Welfare Policy

I discuss selected research contributions of the Melbourne Institute of Applied Economic and Social Research to 50 years of welfare policy for those of workforce age and focus particularly on the policy focus of R. F. Henderson, the inaugural director. Following the spirit of his 1960s poverty research, in the mid‐1970s, government doubled unemployment allowances in real terms and increased pensions by approximately 40 per cent. Both income support payments were to be indexed by average wage increases. At the time, unemployment was typically around 1 per cent and the pension take‐up for those of workforce age was also limited. Today, income support take‐up rates have probably increased fivefold. In response, government has adopted a ‘make work pay’ policy over the last two decades and indexed allowances for Consumer Price Index increases and allowances have fallen by 25–35 per cent, relative to community living standards. Pensions continue to be indexed by average wage changes. I address a range of questions arising from this experience, including: Why has government abandoned the Henderson recommendations?; Is there any evidence that a ‘make work pay’ policy is working?

     

WHY ARE THERE DEMOCRACIES? A PRINCIPAL AGENT ANSWER*

Many organizations operate by majority rule. Why? I consider elections as ways to aggregate information rather than ways to reconcile preferences. This is a principal-agent problem with many principals. Only mechanisms that minimize the weighted sum of type 1 errors (neglecting a deserving agent) and type 2 errors (rewarding an undeserving agent) can escape manipulation. Majority rule uniquely minimizes the sum of errors. Thus majority rule is a very good way to aggregate information.     

The Living Wage,Economic Efficiency,and Socio-Economic Wellbeing in a Competitive Market Economy

Conventional economic wisdom views a Living Wage as costly in term of economic efficiency and competitiveness. I argue, based on x-efficiency theory, that higher wages need not cause any economic harm and can, on the contrary, generate higher levels of material wellbeing. Higher wages can be expected to induce x-efficiency and technological change cost offsets. In this context, an effective living wage, one that is above some subsistence minimum, can have a net efficiency effect on the economy. Therefore, a living wage greater than the wage rate generated by the free market cannot be predicted to generate economic harm. With the institutional parameters in place to realize a living wage, the economic pie can be expected to grow to accommodate the living wage.     

Gender, piece rates and wages: evidence from matched employer-employee data

Why are women disproportionately on piece rates? We investigatethree possible explanations: (1) Women are more likely to beon piece rates, because they have a shorter expected tenurethan men. (2) A greater demand for flexibility between workand home attracts women to work place technologies suitablefor variable pay based on individual performance. (3) Womenprefer piece rates, because they are subject to less wage discriminationwhen objective performance measures are available. The weightof our empirical evidence supports the third hypothesis. Theunexplained gender wage gap is substantially smaller in thepiece-rate regime than in the time-wage regime.     

The Ddeterminants of Individual Wages in Australia: Competitive and Non-Competitive Influences

This work provides a test of competitive theories of wage determination by examining the wages of identical workers across industry classifications. The finding that a set of significant industry wage differentials exists would seem to contradict a purely competitive theory of wage determination. However, the apparent presence of unmeasured human capital that is correlated with industry status does provide one potential competitive explanation for the industry wage effects. Moreover, non-competitive explanations for the differences in industry wages, such as efficiency wage theory or institutional factors, appear to be inconsistent with the nature of the wage differentials.     

Insider-outsider influences on industry wages

The persistence of high rates of unemployment in Europe has focused renewed attention on the wage determination process. One aspect which has received particular attention recently is the extent to which wages are determined by insiders, with outsiders having little impact on the wage bargain. If outsiders are disenfranchised in the wage determination process, they may be unable to underbid themselves into employment. The insider-outsider model, and the associated implication of hysteresis, thus provides a possible explanation for persistent involuntary un-employment. Most empirical work on the importance of the insider-outsider model and hysteresis has been done at the aggregate level, either by testing whether wage growth is related to the level or the change in unemployment, or by testing if employment or unemployment follows a random walk. This paper extends both of these lines of analysis to the industry level. Based on a specification which nests alternative models of the wage determination process, estimation results are presented for fifteen industries using annual data for fourteen industrialized countries, and for pooled time-series cross-country data. The paper also tests the hypothesis that only industry-specific variables are important to the determination of industry wages and considers whether differences in industry wage determination might help to understand cross-country differences in unemployment. The results offer considerable support to the insider view of wage determination. Industries in which wages seem to be determined by a natural rate/Phillips curve model — the primary competing model considered in the paper — appear to be the exception rather than the rule. Moreover, at the industry level hysteresis does not appear to characterise wage formation in the high-unemployment European countries to a greater extent than in North America and Japan.     

The possibility of judgment aggregation on agendas with subjunctive implications

The new field of judgment aggregation aims to find collective judgments on logically interconnected propositions. Recent impossibility results establish limitations on the possibility to vote independently on the propositions. I show that, fortunately, the impossibility results do not apply to a wide class of realistic agendas once propositions like “if a then b” are adequately modelled, namely as subjunctive implications rather than material implications. For these agendas, consistent and complete collective judgments can be reached through appropriate quota rules (which decide propositions using acceptance thresholds). I characterise the class of these quota rules. I also prove an abstract result that characterises consistent aggregation for arbitrary agendas in a general logic.     

转型经济下不同所有制企业工资决定行为的实证研究

本文基于1996年和2000年国家统计局城镇家庭收支调查数据，运用明瑟工资函数进行的实证比较发现，较之工资改革初期，两类企业对教育、经验等人力资本的回报率都有所提升。但二者在人力资本回报方式上存在显著差异。在非国有企业，各种人力资本只有在提高实际生产率的前提下才获得回报，而在国有企业，工资只僵化地奖励人力资本，而不论其是否提高了真实业绩。这说明国有企业对人力资本回报的提升仅源自于对工资政策的人为调整，而非企业面对劳动力市场竞争时的自发回应。