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Personnel economics has been defined as "the application of economic and mathematical approaches and econometric and statistical methods to traditional questions in human resources management".It is an area of applied micro labor economics, but there are a few key distinctions. One distinction, not always clearcut, is that studies in personnel economics deal with the personnel management within firms, and thus internal labor markets, while those in labor economics deal with labor markets as such, whether external or internal. In addition, personnel economics deals with issues related to both managerial-supervisory and non-supervisory workers.
The subject has been described as significant and different from sociological and psychological approaches to the study of organizational behavior and human resource management in various ways. It analyzes labor use, which accounts for the largest part of production costs for most firms, by formulation of relatively simple but generalizable and testable relationships. It also situates analysis in the context of market equilibrium, rational maximizing behavior, and economic efficiency, which may be used for prescriptive purposes as to improving performance of the firm.For example, an alternate compensation package that provided a risk-free benefit might elicit more work effort, consistent with psychologically-oriented prospect theory. But a personnel-economics analysis in its efficiency aspect would evaluate the package as to cost–benefit analysis, rather than work-effort benefits alone.
Personnel economics has its own Journal of Economic Literature classification code, JEL: M5 but overlaps with such labor economics subcategories as JEL: J2, J3, J4, and J5.Subjects treated (with footnoted examples below) include:
Personnel economics began to emerge as a distinct field from a flurry of research in the 1970s that sought to answer the questions of how prices of goods and services traded within a firm are determined. An early difficulty that the subject addressed is possible differences between the interests of an employer considered as wanting cost-free output and employees as wanting cost-free income.The relationship is represented at a general level in the principal-agent problem whose solution is the firm modeled as a set of contracts for efficiently allocating risk and monitoring the performance of the production team and its members. Many questions about wage determination and the relationship between wages and productivity in a firm or government enterprise were raised as a result. The subject was developed in addressing those questions, including examination of pay structure and promotions within hierarchical organizations.
Major theories of the subject developed in the late 1970s and 1980s from the research of Bengt Holmström,Edward Lazear, and Sherwin Rosen to name but a few. Research threads included analysis of:
From the later 1980s, researchers began to forge closer links with experimental economics, including generation of data to test the theories in the field.Other empirical studies conducted then utilized data from sports (e.g. golf tournaments and horse racing). and company records on their suppliers' performances (e.g. raising broiler chickens).
From the 1990s, there was a further surge of empirical tests of the theory from wider availability of personnel records of large companies to researchers and interest in the relation between compensation and productivityand the implications of imperfect labor markets and rent-seeking behavior for the subject.
A retrospective collection of the personnel economics-literature is in Lazear et al., ed. (2004), Personnel Economics, Elgar, with 43 articles dating from 1962 to 2000 (link to contents link here).
Two millennial articles by a contributor to the subject argued in the course of review and assessment to the conclusions that:
Labour economics seeks to understand the functioning and dynamics of the markets for wage labour. Labour is a commodity that supplied by labourers in exchange for a wage paid by demanding firms.
Political economy is the study of production and trade and their relations with law, custom and government; and with the distribution of national income and wealth. As a discipline, political economy originated in moral philosophy, in the 18th century, to explore the administration of states' wealth, with "political" signifying the Greek word polity and "economy" signifying the Greek word "oikonomía". The earliest works of political economy are usually attributed to the British scholars Adam Smith, Thomas Malthus, and David Ricardo, although they were preceded by the work of the French physiocrats, such as François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).
In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of firms and markets. Industrial organization adds real-world complications to the perfectly competitive model, complications such as transaction costs, limited information, and barriers to entry of new firms that may be associated with imperfect competition. It analyzes determinants of firm and market organization and behavior on a continuum between competition and monopoly, including from government actions.
Monetary economics is the branch of economics that studies the different competing theories of money: it provides a framework for analyzing money and considers its functions, and it considers how money, for example fiat currency, can gain acceptance purely because of its convenience as a public good. The discipline has historically prefigured, and remains integrally linked to, macroeconomics. This branch also examines the effects of monetary systems, including regulation of money and associated financial institutions and international aspects.
Managerial economics deals with the application of the economic concepts, theories, tools, and methodologies to solve practical problems in a business. In other words, managerial economics is the combination of economics theory and managerial theory. It helps the manager in decision-making and acts as a link between practice and theory. It is sometimes referred to as business economics and is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units.
Experimental economics is the application of experimental methods to study economic questions. Data collected in experiments are used to estimate effect size, test the validity of economic theories, and illuminate market mechanisms. Economic experiments usually use cash to motivate subjects, in order to mimic real-world incentives. Experiments are used to help understand how and why markets and other exchange systems function as they do. Experimental economics have also expanded to understand institutions and the law.
The principal–agent problem, in political science and economics occurs when one person or entity, is able to make decisions and/or take actions on behalf of, or that impact, another person or entity: the "principal". This dilemma exists in circumstances where agents are motivated to act in their own best interests, which are contrary to those of their principals, and is an example of moral hazard.
In labor economics, the efficiency wage hypothesis argues that wages, at least in some labour markets, form in a way that is not market-clearing. Specifically, it points to the incentive for managers to pay their employees more than the market-clearing]] wage to increase their productivity or efficiency, or to reduce costs associated with employee turnover in industries in which the costs of replacing labor are high. The increased labor productivity and/or decreased costs may pay for the higher wages.
The theory of the firm consists of a number of economic theories that explain and predict the nature of the firm, company, or corporation, including its existence, behaviour, structure, and relationship to the market.
Articles in economics journals are usually given classification codes according to a system originated by the Journal of Economic Literature. The JEL is published quarterly by the American Economic Association (AEA) and contains survey articles and information on recently published books and dissertations. The AEA maintains EconLit, a searchable data base of citations for articles, books, reviews, dissertations, and working papers classified by JEL codes for the years from 1969. A recent addition to EconLit is indexing of economics-journal articles from 1886 to 1968 parallel to the print series Index of Economic Articles.
Edward Paul Lazear is an American economist, the Morris Arnold and Nona Jean Cox Senior Fellow at the Hoover Institution at Stanford University and the Davies Family Professor of Economics at Stanford Graduate School of Business.
Tournament theory is the theory in personnel economics used to describe certain situations where wage differences are based not on marginal productivity but instead upon relative differences between the individuals. This theory was invented by economists Edward Lazear and Sherwin Rosen.
Cultural economics is the branch of economics that studies the relation of culture to economic outcomes. Here, 'culture' is defined by shared beliefs and preferences of respective groups. Programmatic issues include whether and how much culture matters as to economic outcomes and what its relation is to institutions. As a growing field in behavioral economics, the role of culture in economic behavior is increasingly being demonstrate to cause significant differentials in decision-making and the management and valuation of assets.
Employment protection legislation (EPL) includes all types of employment protection measures, whether grounded primarily in legislation, court rulings, collectively bargained conditions of employment, or customary practice. The term is common among circles of economists. Employment protection refers both to regulations concerning hiring and firing.
Public economics is the study of government policy through the lens of economic efficiency and equity. Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare.
Rural economics is the study of rural economies, including:
Demographic economics or population economics is the application of economic analysis to demography, the study of human populations, including size, growth, density, distribution, and vital statistics.
Kevin James Murphy is a professor at the University of Southern California. Since 2006, Murphy has held the Kenneth L. Trefftzs Chair in Finance at the USC Marshall School of Business. He is also a Professor of Law at the USC Gould School of Law and Professor of Economics at USC's College of Letters, Arts & Science.
Kathryn L. Shaw is the Ernest C. Arbuckle Professor of Economics at the Graduate School of Business, Stanford University. Previously, she was the Ford Distinguished Research Chair and Professor of Economics at Tepper School of Business, Carnegie Mellon University. She graduated from Occidental College in 1976, and completed her PhD in economics at Harvard University in 1981. From 1999-2001, she served as a Senate-confirmed Member of President Bill Clinton's Council of Economic Advisers.
Oriana Bandiera, FBA is an Italian economist and academic, specialising in development economics. She has been Professor of Economics at the London School of Economics since 2009. She is currently the Sir Anthony Atkinson Professor of Economics at the London School of Economics, Director of the Suntory and Toyota International Centres for Economics and Related Disciplines since 2012, Director of State Capabilities at the International Growth Centre, and Co-Director of the Development Research Program at the CEPR.