Personnel Strategy
45-971
Professor Robert A. Miller
Mini 4, 2014
Course objectives
This course will help you to better understand:
1. How workers respond to opportunities for
advancement and incentives that affect their
working conditions and financial compensation.
2. The legal constraints encumbering employers in
the workplace and their industrial relations, and
the opportunities for substituting between different
types of labor inputs and also external sourcing.
3. How to design tasks, form and nurture the best
worker-firm matches, and provide incentives that
induce them to pursue your objectives.
Course website
The course website is:
http://www.comlabgames.com/45-971/
At the website you can find:
the course syllabus
power points slide lecture notes
background reading material
games you can download
material for the assignments
Lecture 1
Recruiting and Hiring
To motivate why personnel management in the U.S.
is an important topic for business analysis, we begin
with a brief overview of demographics in the U.S.
and the its labor market. Then we provide evidence
showing that incentives to align the workers goals
with the firms are an important tool in personnel
management. This motivates the course title
“Personnel Strategy”, recognizing that players with
different life goals impact on each other in the
workplace.
Finally
we
conduct
classroom
experiments to illustrate how employers with
different infrastructure compete for workers of
different quality.
Is hiring in the U.S. labor market too costly?
An international comparison of hourly compensation
costs for manufacturing production workers shows:
Source: U.S. Bureau of Labor Statistics, www.bls.gov (2010)
Science
Technology
Engineering
Math
Comparing
educational
achievement
across the
OECD.
Sources: STEM Education, Preparing for the Jobs of the Future. A Report by the Joint
Economic Committee Chairman’s Staff Senator Bob Casey, Chairman, April 2012.
Labor force participation rates by age (percent)
Participation of young adults (20 -24) in the labor
force gives them valuable job market experience.
Source: “International Comparisons of Annual Labor Force Statistics, 1970-2012”, International
Labor Comparisons, June 2013. http://www.bls.gov/fls/flscomparelf/lfcompendium.pdf
Unemployment rates in 10 countries,
seasonally adjusted (percent)
Source: “International Unemployment Rates and Employment Indexes, Seasonally Adjusted, 2009-2013”,
Bureau of Labor Statistics, August 2013. http://www.bls.gov/fls/intl_unemployment_rates_monthly.pdf
Is the U.S. labor market globally competitive?
Compared to other similarly developed countries, the
U.S. has comparable:
1. wage rates
2. educational accomplishments
3. workforce participation rates
4. unemployment rates
The internal U.S. labor market is much bigger than any
single European country, is about the size of the whole
E.U. labor market, but is much more integrated.
Energy prospects in the U.S. look very promising.
Canada and Australia are also endowed with a vast
natural resource base they have benefited from
enormously over the past 50 years.
Comparing future demographics of the U.S.
with other countries
Ranking countries by projected population increase
between 2010 and 2040, the U.S. is fifth (at 93 million),
behind India (467), Nigeria (231), Pakistan (101) and
Tanzania (also 93).
The U.S. is the only country in the top:
1. 25 countries that is wealthy
2. 10 with a total fertility rate at near replacement
3. 25 with a median age of over 30 years old
4. 25 where more than 6% of its population are
foreign born (13% in American population)
So the U.S. is much wealthier, older, much less fertile
and has much more immigration than every other
country that will experience similar population growth.
The long term labor market outlook
Based on this long term evidence I believe the U.S.
labor market will grow substantially over the next
30 years.
This will be matched with more firms with more
capital, and thus greater productivity per worker in
the U.S.
What strategies should firms be adopting to
manage the larger labor market?
This course is directed at analyzing personnel
strategy in the American labor market.
How can employees be managed?
There are four main ways bosses induce
their subordinates to do what they want
them to:
1. Command, control and force.
2. Persuade, shame and coerce.
3. Deceive and trick.
4. Provide incentives.
Command and control
This is common in hierarchic structures
such as the military, where there is a clear
chain of command, and in war, little time to
deliberate.
It also arises in production lines, where a
process involving work duties must be
integrated or coordinated with industrial
processes using machinery.
Note that workers may willingly accept the
challenge of performing in these settings,
partly for compensation before, during and
after the period of employment.
Persuasion, shaming and coercion
This is most effective when management knows
the emotional and psychological vulnerabilities of
their workforce.
It is common in military and police academies,
college sport, and activism in political parties.
It does not necessarily involve duplicity: employees
may understand their own vulnerabilities and when
enrolling agree to be subjected to what some
would describe as abuse.
Deception and trickery
This is more likely to work:
1. the longer the lie can be sustained
2. and the less recourse employees have to extract
compensation or vengeance later.
Newly independent teenagers and young adults, the
mentally handicapped, and illegal migrants seem more
susceptible than other demographic groups.
It is most prevalent in illegal activities where legal
recourse is almost nonexistent, such as:
1. illegal immigration and itinerant work
2. prostitution (sometimes combined with the above)
Incentives
Incentive schemes:
1. reward employees for pursuing objectives they
might otherwise disregard
2. are also used as a selection device by appealing to
some groups of potential employees versus others.
Incentives are used in conjunction with the other
methods. For example in the military forces, incentives
are used to attract recruits, by subsidizing their
education, and making life more attractive for their
family during and after their term of employment.
This course will focus on the provision of incentives.
Nevertheless Assignment 1 is a case study in which all
four management tools appear to have been used.
Do employees react to incentives?
An exhaustive study is clearly beyond the scope of this
course but here are four pieces of evidence:
1. Navy recruitments peak just before a performance
review and trough immediately after.
2. Training centers are paid annual bonuses for the
rate at which their “graduates” find jobs. They
maximize the speed at which their unemployable
students graduate, subject to the constraint of not
losing the bonus.
3. Team compensation increases the performance of
the least productive members and reduces the
performance of the most producitve members.
4. Employee productivity increases work harder when
they given financial incentives.
When do recruiters work hard?
The Behavior of Navy Recruiters (Asch 1990).
Job Training Partnership Act (JTPA)
The JTPA pays training centers for all graduates plus
the percentage finding employment shortly thereafter.
INCIDENCE OF DELAYED TERMINATION BY
EMPLOYMENT PERFORMANCE OUTCOME
EMPLOYMENT
RATE AT
TERMINATION
IN PROGRAM
YEAR 1988
MONTHLY ENROLLMENT
AND TERMINATION COUNTS
Courty and Marschke (1997)
Team members monitor each other
when it pays
Response of Telephone Operators to Team-Based Compensation (Hansen 1997).
Employees work harder when offered
financial incentives
Profit Sharing and Productivity (Kruse 1993).
What are the main issues
in managing personnel?
Roughly speaking, personnel strategy is about
designing and implementing:
1.
2.
3.
4.
5.
6.
7.
8.
legally acceptable employment protocols
recruiting and hiring practice
rotation and promotion schemes
compensation packages
other benefit programs to employees
retention, firing and retirement policies
work rules and industrial relations agreements
policies for fringe workers
. . . . . that benefit the firm.
Personnel management as a strategic issue
In Strategic Corporate Management I emphasized that
every strategic issue revolves around the answers to
four basic questions:
1.
2.
3.
4.
Who are the players involved?
What can each player do?
What does each one know?
What are the range of consequences for all the
players from each pursuing its own strategy?
Thus all eight issues have important strategic aspects.
Recruiting and hiring
The main players are:
1. The candidates for the open positions
2. The recruiting firms competing for them.
Their choices revolve around:
1. Continuing to search over a broader pool
2. Making and accepting the best offer so far.
The main consequences:
1. Further delays in beginning work
2. Keeping open the option of a better job match.
So far as information is concerned, candidate employees
know much more about themselves than their potential
employers, and vice-versa.
Lecture summary
The rationale for analyzing personnel management within
the U.S. economy is that on a global scale, the U.S. labor
market is educated, big, and growing.
One of the most important ways of managing employees
in the free modern world is to incentivize them .
There is abundant evidence that employees rationally
respond to incentives they face.
Personnel strategy brings the tools of strategy to personnel
management.
We conducted experiments to explore how job matches
are made and incentives are created to achieve equlibrium
in the labor market.