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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.
Microeconomics is a branch of economics that studies the behaviour of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.
Internal labor markets (ILM) are an administrative unit within a firm in which pricing and allocation of labor is governed by a set of administrative rules and procedures. The remainder of jobs within the ILM is filled by the promotion or transfer of workers who have already gained entry. Internal labor markets are shielded from the competition of external labor markets (ELM). However, competition of ILM exists within the firm in the form of job promotions and pay.
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.
Organizational behavior (OB) or organisational behaviour is the: "study of human behavior in organizational settings, the interface between human behavior and the organization, and the organization itself". OB research can be categorized in at least three ways:
Human resource management is the strategic approach to the effective management of people in an organization so that they help the business to gain a competitive advantage. It is designed to maximize employee performance in service of an employer's strategic objectives. HR is primarily concerned with the management of people within organizations, focusing on policies and on systems. HR departments are responsible for overseeing employee-benefits design, employee recruitment, training and development, performance appraisal, and Reward management. HR also concerns itself with organizational change and industrial relations, that is, the balancing of organizational practices with requirements arising from collective bargaining and from governmental laws.
Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior. The basic premise of rational choice theory is that aggregate social behavior results from the behavior of individual actors, each of whom is making their individual decisions. The theory also focuses on the determinants of the individual choices.
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:
Articles in economics journals are usually classified according to the JEL classification codes, 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.
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.
In economics, a service is a transaction in which no physical goods are transferred from the seller to the buyer. The benefits of such a service are held to be demonstrated by the buyer's willingness to make the exchange. Public services are those that society as a whole pays for. Using resources, skill, ingenuity, and experience, service providers benefit service consumers. Service is intangible in nature.
A hierarchical organization is an organizational structure where every entity in the organization, except one, is subordinate to a single other entity. This arrangement is a form of a hierarchy. In an organization, the hierarchy usually consists of a singular/group of power at the top with subsequent levels of power beneath them. This is the dominant mode of organization among large organizations; most corporations, governments, and organized religions are hierarchical organizations with different levels of management, power or authority. For example, the broad, top-level overview of the general organization of the Catholic Church consists of the Pope, then the Cardinals, then the Archbishops, and so on.
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:
Bengt Robert Holmström is a Finnish economist who is currently Paul A. Samuelson Professor of Economics at the Massachusetts Institute of Technology. Together with Oliver Hart, he received the Central Bank of Sweden Nobel Memorial Prize in Economic Sciences in 2016.
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.
Sherwin Rosen was an American labor economist. He had ties with many American universities and academic institutions including the University of Chicago, the University of Rochester, Stanford University and its Hoover Institution. At the time of his death, Rosen was Edwin A. and Betty L. Bergman Distinguished Service Professor in Economics at the University of Chicago and president of the American Economic Association.
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.
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 "okonomie". 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 or industrial economy 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 as 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, such as medium of exchange, store of value and unit of account. It considers how money, for example fiat currency, can gain acceptance purely because of its convenience as a public good. It examines the effects of monetary systems, including regulation of money and associated financial institutions and international aspects.
Socioeconomics is the social science that studies how economic activity affects and is shaped by social processes. In general it analyzes how societies progress, stagnate, or regress because of their local or regional economy, or the global economy. Societies are divided into 3 groups: social, cultural and economic.
Managerial economics deals with the application of the economic concepts, theories, tools, and methodologies to solve practical problems in a business. In other words we can say that 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.
Information economics or the economics of information is a branch of microeconomic theory that studies how information and information systems affect an economy and economic decisions. Information has special characteristics: It is easy to create but hard to trust. It is easy to spread but hard to control. It influences many decisions. These special characteristics complicate many standard economic theories.
Social choice theory or social choice is a theoretical framework for analysis of combining individual opinions, preferences, interests, or welfares to reach a collective decision or social welfare in some sense. A non-theoretical example of a collective decision is enacting a law or set of laws under a constitution. Social choice theory dates from Condorcet's formulation of the voting paradox. Kenneth Arrow's Social Choice and Individual Values (1951) and Arrow's impossibility theorem in it are generally acknowledged as the basis of the modern social choice theory. In addition to Arrow's theorem and the voting paradox, the Gibbard–Satterthwaite theorem, the Condorcet jury theorem, the median voter theorem, and May's theorem are among the more well known results from social choice theory.
Economics imperialism in contemporary economics is the economic analysis of seemingly non-economic aspects of life, such as crime, law, the family, prejudice, tastes, irrational behavior, politics, sociology, culture, religion, war, science, and research. Related usage of the term goes back as far as the 1930s.
In economics, distribution is the way total output, income, or wealth is distributed among individuals or among the factors of production. In general theory and the national income and product accounts, each unit of output corresponds to a unit of income. One use of national accounts is for classifying factor incomes and measuring their respective shares, as in national Income. But, where focus is on income of persons or households, adjustments to the national accounts or other data sources are frequently used. Here, interest is often on the fraction of income going to the top x percent of households, the next x percent, and so forth, and on the factors that might affect them.
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.
Public economics is the study of government policy through the lens of economic efficiency and equity.
Mathematical economics is the application of mathematical methods to represent theories and analyze problems in economics. By convention, these applied methods are beyond simple geometry, such as differential and integral calculus, difference and differential equations, matrix algebra, mathematical programming, and other computational methods. Proponents of this approach claim that it allows the formulation of theoretical relationships with rigor, generality, and simplicity.
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.