Wondershare EdrawMind
MindMap Gallery Personnel Management Economics Key Points
- 23
Personnel Management Economics Key Points
Summary of the key points of personnel management economics, including determining employment standards, hiring suitable employees, understanding employee productivity, floating wages or fixed wages, human capital theory, etc.
Edited at 2021-12-21 17:23:35
- bacteria
This is a mind map about bacteria, and its main contents include: overview, morphology, types, structure, reproduction, distribution, application, and expansion. The summary is comprehensive and meticulous, suitable as review materials.
- Plant asexual reproduction
This is a mind map about plant asexual reproduction, and its main contents include: concept, spore reproduction, vegetative reproduction, tissue culture, and buds. The summary is comprehensive and meticulous, suitable as review materials.
- Reproductive development of animals
This is a mind map about the reproductive development of animals, and its main contents include: insects, frogs, birds, sexual reproduction, and asexual reproduction. The summary is comprehensive and meticulous, suitable as review materials.
Personnel Management Economics Key Points
- bacteria
This is a mind map about bacteria, and its main contents include: overview, morphology, types, structure, reproduction, distribution, application, and expansion. The summary is comprehensive and meticulous, suitable as review materials.
- Plant asexual reproduction
This is a mind map about plant asexual reproduction, and its main contents include: concept, spore reproduction, vegetative reproduction, tissue culture, and buds. The summary is comprehensive and meticulous, suitable as review materials.
- Reproductive development of animals
This is a mind map about the reproductive development of animals, and its main contents include: insects, frogs, birds, sexual reproduction, and asexual reproduction. The summary is comprehensive and meticulous, suitable as review materials.
- Recommended to you
- Outline
Personnel Management Economics
Chapter 1 Introduction
The founder of personnel economics
Edward Raziel
Personnel Management Economics
definition
Is the discipline that uses economics to understand the inner workings of companies
birth sign
In 1987, The Journal of Labor Economics published its first special issue on the economics of personnel management.
What gave rise to the economics of personnel management
Motivation for Business School Courses
The systematic nature of economic analysis methods
technological change in economics
Major breakthroughs in theory and improvements in information technology
relation
Labor Economics
Pay attention to the external labor market outside the enterprise
Personnel Management Economics
Discuss all personnel issues within the enterprise from an economic perspective
human resource Management
The research results of personnel management economics can guide the application in human resource management practice
Reasons for Economic Analysis of Human Resource Management Problems
Careful thinking can help employers find a way to enhance the interests of both employees and shareholders.
Rigorous analysis can help employees by discouraging employers from taking some arbitrary and harmful actions.
Make people aware of the costs of making a particular decision: Without analysis, companies tend to overestimate rather than underestimate the costs of being more generous to employees.
Chapter 2 Determining Employment Standards
General principles for selecting skill standards
Look at ratios rather than absolute values
Wh /Q h =W L /Q L
W h /Q h <W L /Q L
W h /Q h >W L /Q L
The most cost-profitable labor force is the one with the lowest ratio of wages to output
(W h represents the wage of high-quality labor, W L represents the wage of low-quality labor; Qh represents the output of high-quality labor, Q L represents the output of low-quality labor)
When the financial situation is not optimistic, companies should not lower labor employment standards.
Choose foreign labor markets not because of low labor prices but because of low labor ratios
reason
The net benefits brought by the two types of labor are not affected by the company's profits or losses, so the company's employment decision will not change with the company's current profit level.
The basic principle on which employment is based remains the "value for money" of labor. If high-quality workers are cost-effective, then although the cost paid is high, high-quality labor must still be hired.
Selection of technical variables
Education level and work experience
reason
In real life, the values of productivity and wages are difficult to obtain directly.
Two important factors influencing productivity and wages are education level and work experience
When more than two skill levels need to be considered (high, medium, low)
exhaustive comparison
Pairs of PK
The relationship between the nature of production and productivity
Depends on individual efforts (relatively independent in production)
W/Q decision
Rely on people-to-people collaboration
Preference for hiring high-quality workers
Relying on the collaboration of people and capital
Capital investment will not bring about an absolute increase in costs, but hiring professional and technical personnel will bring high labor productivity.
Once a firm increases the quantity or quality of the capital stock it employs, then it should improve the quality of the labor force accordingly
The possibility of hiring workers does not affect the company’s hiring decisions
Two special cases
local labor market
Expand the labor market and break through monopoly
special labor force
It can only be obtained through search, so the search cost is included in the hiring cost.
Determination of the number of workers to be hired
As long as increasing the number of workers hired can bring positive profit increments to the company, the company should continue to hire more workers.
Marginal value of worker > Marginal cost of worker
Employment decisions when data is not readily available
Guess, intuition, experience
Database, personnel data estimation W/Q
Experimental method: probation period
Hire risky workers
in conclusion
Under normal circumstances, companies should indeed hire at-risk workers
inference (condition)
1) The value of hiring a high-risk worker decreases as the age of the hired worker increases.
2) The statement that hiring high-risk workers is always better than hiring low-risk workers is only a general conclusion and depends on the probability of the risk occurring.
3) The shorter the time required to understand an employee's productivity, the more valuable the employee at risk is.
4) Only if it is proven that the annual expected output of high-risk workers is lower than that of low-risk workers can it be more advantageous to hire low-risk workers than to hire high-risk workers.
Chapter 3 Hiring the Right Employees
adverse selection
Adverse selection occurs when a company's special policies (such as high wages) attract the wrong type of workers.
How to avoid or reduce the impact of adverse selection
Use diplomas, qualifications
Diploma as screening criteria
assumed
Education level is highly correlated with productivity at work
The additional costs (i.e. higher wages) of those with higher levels of education are more than compensated by their higher productivity
condition
The ability to study well in school is highly correlated with the ability to work well at work
Obtaining relevant diplomas is relatively easy for high-quality workers, but very difficult for low-quality workers
Determination of the validity of screening criteria
Most applicants have this indicator characteristic (just at different levels)
Two salary systems (functioning to classify personnel)
Piece rate
Easier to attract quality workers
Probation
For jobs where output is difficult to account for, or labor where pricing costs are high, use a trial period to screen
A trial period and a properly designed compensation plan can bring a pool of qualified candidates to the business
Determine wage rate
wanted person
Wages are higher than what other companies offer
unwanted person
Wages are lower than the income levels offered by similar companies
Filtering principles/conditions of use
(1) When an enterprise hopes to attract skilled workers, and the enterprise has difficulty identifying workers’ skills before the probation period, the probation period is a way to attract skilled workers and save costs.
(2) As the possibility of unskilled workers being discovered increases during the probation period (that is, the less likely they are to get through, the smaller P), the wage difference between the probation period and after the probation period can be appropriately reduced.
(3) As the wage gap between skilled workers and unskilled workers outside the enterprise decreases, it becomes easier to block unskilled workers. When unskilled workers and skilled workers may receive almost the same wages outside the enterprise, the difference in wages between the probation period and after the probation period can be very small.
(4) As the probability of unskilled workers being continuously employed after the probation period increases (P), the difference between the wages during the probation period and the wages after the probation period must also increase. — Same as the second principle
(5) When the probability of slipping through is very high, the salary during the probation period may become a negative number, which means paying a risk fee to the company
(6) When the possibility of identifying unskilled workers is high and the wages of unskilled workers are relatively close to those of skilled workers, the probation period is the most effective screening tool.
(7) Observing the quality of workers and their productivity during work is less costly than observing during interviews
(8) The cost of hiring the “wrong person” is not high
How farmers benefit
Piece rate: high cost, high output
Lower wages are paid to low-skilled workers, and costs are not measured by output, so this is balanced by workers' lower productivity
Piece rate wages have no incentive effect, only personnel classification effect, and its high productivity is only because it absorbs better workers.
Hourly wage: low cost, low output
Pay high wages to high-quality workers, and the extra wages are made up for by the extra output. By subtracting a certain amount from the workers' wages, they make up for the costs incurred by supervising output.
Workers bear part of the supervision costs
The piece-rate wage system is generally able to attract workers with higher output than hourly wages, but companies using piece-rate wages must pay higher average wages and bear higher supervision costs.
adverse selection
Buyout programs may lead to adverse selection
Those with high productivity are bought out and left.
salary compression
That is, the wages of the best workers tend to be closer to the wages of the worst workers, which will lead to the emergence of adverse selection, because other companies can poach high-quality workers who are relatively underpaid.
Solutions
Make the richness of the buyout plan inversely linked to the current work performance of professors
Adjust the internal wage structure to further widen the wage gap
Chapter 4 Understanding Employee Productivity
Adverse selection occurs when workers know their productivity
concept
Personal information: information about the employer himself, including strengths and obstacles
Information asymmetry: knowing oneself but not knowing others; not knowing oneself, knowing others, or being known by the employer
Symmetric ignorance: Both the recruiter and the applicant lack information about the worker's future performance, and neither party has a clear idea of whether the applicant will successfully perform the job.
Determine employee productivity, screening
benefit
Hire the best workers and avoid hiring useless people by mistake
Disadvantages
Understanding employee productivity can come at a high cost
Employees raise wages after knowing it
Competitor companies found out and poached employees
When productivity is easy to determine
Although screening costs money, screening can bring greater profits to the company
When productivity is difficult to determine
Screening is not cost-effective
in conclusion
Screening job applicants is more profitable when screening costs are small
Screening is profitable when it results in the rejection of a larger proportion of applicants
Screening is more profitable when it is costly for the business to hire those who need to be screened out
Different departments: work arrangement issues
By randomly assigning work tasks, a firm can achieve lower output than by strategically allocating workers. The greater the gap between job types within an enterprise, the greater the value of screening.
in conclusion
When the number of vacant positions is variable, workers should be placed in positions where they can fully utilize their abilities.
When the number of job vacancies is given due to technical limitations, workers should be queued according to their absolute advantages and assigned to appropriate jobs until all vacancies are filled.
Absolute advantage: the difference in productivity between the two departments
inference
Allocating work through personnel classification is most important when there are considerable differences in the skills of different workers
When workers are homogeneous (homogeneous between individuals, homogeneous within individuals) and their skills are similar in all jobs, there is not much value in personnel selection.
Screening does not affect a company’s attractiveness to job seekers
reason
The reason why job seekers choose companies that screen job seekers is because they can get high wages to make up for the resulting losses.
Workers come to a company that screens job applicants because the company hires more productive workers and can afford to pay higher wages.
Reasons for higher wages (risk taken by job seeker)
Since workers cannot be sure whether they will be hired, they must be able to make up for the loss of time and other costs when they apply for a job at the screening company (prepare relevant knowledge and materials)
If a job applicant is not hired by the screening company, there will be a reputational loss (risk) because it reduces the chance of being hired by other companies. (public information)
Chapter 5: Floating Salary or Fixed Salary?
Two wage systems
Timing
Definition: A type of compensation that depends on the amount of time or effort an employee puts into work activities
Reasons for hourly wages: Measuring output costs money.
Pursue quantity or quality
The cost of measuring quality is much higher than the cost of measuring quantity, which leads to emphasis on quantity and neglect of quality.
Solution
Implement a contracting system, charge employees a certain fee (rent the brokerage services provided by the company), and then pay the employees, as in the example of the taxi driver
Choose the appropriate time unit (hourly wage)
The more difficult it is to explain clearly the work tasks, the longer it will take to calculate and pay the compensation.
Piecework
Definition: Employees are compensated based on certain outcome measures rather than on the time and effort they invest
Marginal product determines wages
Advantage
Filtering function: automatic filtering mechanism
Good employees stay with the business, while worse employees leave (retention and turnover)
Incentive effect: incentives to directly increase production
Motivate employees to work hard, not just show up at work (after hiring)
eg: taxi driver
Rent system (conducive to personnel classification and avoid the occurrence of adverse selection) vs profit sharing system (high cost of collusion and supervision)
capital distortion
Definition: Even if a higher commission rate is given, it does not necessarily avoid the excessive use or destruction of capital goods.
solution
Sell the car and collect damage maintenance fees
eg: salesperson
break-even point
When commission rates and profit margins are equal, total sales revenue equals total cost output
The sales volume of goods depends on the comparison between the income obtained from the marginal sales volume and the value of the effort. When the two are equal, the sales behavior reaches the equilibrium position.
Commission system: The amount of commission depends on the profit rate of the company, and the commission ratio must be smaller than the profit rate.
Rent system: If the commission rate is equal to the profit rate, the company must charge rent to the sales staff.
elimination screening
Reasons for mixed timing and piece counting
When companies adopt hourly wage contracts, they often determine the next year's compensation level based on employee performance in the previous year. That is, this year’s salary reflects the previous year’s productivity.
Under a piece-rate contract, companies often change the piece-rate rate based on the previous year's productivity. If productivity was too high in the previous year, the employer will reduce piece rates. This also seems to reflect some kind of timing characteristics
If the piece rate is reduced, employees may not necessarily leave the company, because the factors that affect employee turnover are not just compensation. Such as corporate culture, search cost, etc.
Project reward
cost plus method
It is a method of paying remuneration based on input. The disadvantage is that it cannot motivate employees to work hard to save costs and complete the work with optimal expenditure.
Fixed remuneration method (piece rate)
It is a method of payment based on output. When quality is difficult to observe, there is an incentive to ignore quality
Risk Aversion
Those who receive piece-rate wages bear the risk themselves, while those who receive hourly wages bear the risk on the part of the enterprise.
reason
This is because efficient workers have a strong risk-taking ability, while inefficient workers have a weak risk-taking ability. Therefore, risk factors favor high-productivity workers being paid piece rates, while low-efficiency workers are better suited to be paid hourly wages.
Employees who take more risks receive higher average wages and have greater earnings fluctuations
Corporate intermediary
By producing products or providing services, what an enterprise ultimately obtains in the market is basically piece-rate remuneration, but what it obtains in the enterprise is not necessarily piece-rate remuneration.
The reason why companies use different remuneration payment methods is to ultimately obtain the maximum piece-rate remuneration paid by buyers in the market. The enterprise is just an intermediary that ultimately realizes piece rate remuneration.
The incentives of internal managers and shareholders are incompatible
Shareholders - long-term incentives
Manager-Short-Term Incentives
stock option system
Chapter 6 Human Capital Theory
Basic theory
Human Capital Theory: Investment and Management of Human Capital
Two major contents
formal schooling
cost
direct cost
Tuition, book fees, additional costs of living away from home, and other incidental expenses
opportunity cost
It is defined based on the time spent in school and the income earned from work.
The optimal time to stop receiving education
Definition: The year when income exceeds costs and costs exceed income.
Influencing factors
cost perspective
An increase in the tuition rate will reduce the school's enrollment (direct cost)
People who already have high-paying jobs are often reluctant to go back to school and get another degree (opportunity cost)
revenue perspective
Rising interest rates mean fewer years of schooling
The higher the interest rate, the better it is to go to work and deposit money in the bank. When another investment is not a good choice, education is a better way to invest.
Interest rates have no significant impact on enrollment rates
reason
Pay period is long, long term interest rate
Parents’ education investment is not directly related to investment and interest rates
non-monetary benefits
Will it affect who goes to school and who doesn't?
On the job trainingOJT
General on-the-job training
Definition: A human capital investment that can effectively and equally increase the productivity of enterprises that provide training and the productivity of other enterprises that do not provide training.
age-wage profile curve
People who invest in human capital will initially have a lower age-wage profile than an equivalent non-investor, but the curve for human capital investors will quickly rise above the curve for non-investors.
The curve has a positive slope, and workers earn less money when they are younger than when they are older.
This profile curve gradually flattens with age.
Special on-the-job training
Definition: It makes an employee more productive within the company, but has no impact on his or her productivity when working elsewhere
Enterprise-specific human capital increases over time
Who will bear the training costs?
Enterprises can give up part of the profits that may be gained from investing in employees, and at the same time require employees to bear part of the training costs themselves.
in conclusion
Employees who have obtained general human capital do not have to work permanently in the company that provides training, while employees who have obtained special human capital from the company will inevitably be more closely connected with the company, because their value outside the company is greater than that within the company. The value is lower
inference
At a younger age, employees who receive special training are less likely to work permanently in the enterprise. Since the company's special human capital increases over time, the loss caused by the resignation of a senior employee to the employee and the company will be greater than the loss caused by the resignation of a junior employee.
Which employees should receive training?
When on-the-job training is general training, employees must bear the cost of training themselves by accepting lower wages. This means that any employee who wishes to participate in a training program should be given the opportunity
What type of employee chooses a job that requires more training?
Jobs that offer training at the expense of lower starting salaries are most likely to be taken by younger workers and those who plan to stay in the labor market for a longer period of time
Summarize
1) When on-the-job training is enterprise-specific, employees and the enterprise share the cost of training and the benefits of training. This approach will reduce employee turnover and encourage both parties to make appropriate investment decisions.
2) As is the case with general on-the-job training, those most likely to invest in enterprise-specific on-the-job training at the expense of lower starting salaries will be younger employees and those who plan to stay in the labor market for a longer period of time.
3) Since employees are not always most aware of the possibility of leaving the company, and employees who have obtained the company's special human capital will cause the company to bear certain costs, compared with providing general on-the-job training, the company needs to During special on-the-job training, more active actions will be taken in selecting training objects. The company hopes that the trained employees will have a lower possibility of turnover, so that their productivity will be greatly improved due to training.
Chapter 7 Mobility, Dismissal and Buyout
Integrate senior staff with new hires
young employees
Brings new technologies and new ideas to the enterprise
senior employee
Better grasp the information most relevant to the current enterprise
Advantages over general skills that can only be better mastered at work and understanding of actual situations
It is often more advantageous to understand the characteristics of the industry in which the enterprise operates and the special production characteristics of the enterprise.
Why is the combination of 2 senior employees and 5 young employees not as good as the combination of 2 senior employees and 4 young employees?
1. One old employee can supervise two new employees, but as the number of young employees increases, the ability of the old employees to supervise has declined.
2. Four young employees can most effectively transfer most of the latest technologies they master to older employees, and the increase in information flow brought by adding another young employee is not enough to make up for the cost of adding him.
Factors that will affect the optimal matching ratio between young employees and older employees
Industry development speed
Number of skills learned on the job versus skills learned through formal education or training before entering the workforce
Is the work experience in the current enterprise special?
dismiss
Reasons for dismissal decision
Labor productivity
The salary provided by the enterprise to the employee can be higher than the salary level he can get in other enterprises, but lower than his value to the current enterprise
special human capital
When a senior employee has more firm-specific human capital, the firm is less likely to want to fire him.
When a company's specific human capital is more important, the company can maximize profits by firing employees from both ends of the age distribution.
buyout
The buyout plan does not apply to older employees approaching retirement age and younger employees
buyout formula
A buyout plan is feasible
PV(A)>PV(βV)
From the perspective of the enterprise - PV(βV) < PV(W)
The present value of output is less than the present value of wages
From the employee’s perspective – PV(W) < PV(A)
The present value of external wages is greater than the present value of wages within the enterprise
PV(A)>PV(W)>PV(βV)
three parameters
PV(W)
The present value of the total wages generated after a certain age and before retirement at age 65
PV(A)
The present value of the total wages generated from other jobs in other companies after a certain age and before retirement at the age of 65
PV(βV)
The present value of the total output in the current enterprise after a certain age and before retirement at the age of 65
If the bid ≥ the asking price, a buyout is possible
Firm bid: the difference between wages payable and output
Employee asking price: the difference between the present value of total remaining wages and the present value of possible compensation for doing other jobs
Two potential factors affecting the feasibility of a buyout
Other options for employees (small losses from leaving the current company, low price offered by employees)
The lower the employee's output in the current company, the more eager the company is to implement a buyout plan (the company offers a higher price)
Low employee output and good outside opportunities will make buyout plans more feasible
Hope layoff ≠ buyout plan is feasible
Buyout or layoff?
Influencing factors
age
Enterprise special human capital
Asking price is high, bidding is low
productivity differences
The difference between the present value of output and the present value of possible remuneration for other jobs. When the difference is negative, the buyout plan is profitable (present value of output PV (βV) < present value of remuneration for other work PV (A))
Potential Risks of Buyout Programs—Adverse Selection
Practical application
window plan
The company's bid depends on the difference between output and the present value of wages. If the implementation time of buyout can be estimated, employees may deliberately reduce productivity to drive up the buyout price.
bridge to retirement
It is assumed that employees retire according to the normal retirement age, so older employees can receive higher pensions
Job Placement Service Center
Job placement can increase the present value of compensation that employees receive from other jobs
Need to consider placement costs
Chapter 8 Promotion Incentives
The basic connotation of the competition model
Bonuses are fixed in advance and not dependent on absolute performance
Bonuses are based on relative performance rather than absolute performance
The extent to which an employee pursues a promotion depends on the salary increase associated with the promotion
marginal effect
Two sources of interference with wage structures
production uncertainty
luck vs hard work
measurement error
subjectivity of evaluation
When the interference factors are infinite, the effort level approaches zero.
Two salary structures
Smooth wage structure (equispaced sequence)
Inclined wage structure (unequal intervals)