Personnel Economics

The more costly it is to fire a worker, the higher the cost of hiring a risky one

If a firm is risk-averse, risky workers are costly in a different way

The longer the evaluation period, the less valuable a risky hire becomes

The younger the hire and the lower the turnover, the greater the value of hiring a risky worker

If a risky worker is a superstar, we must pay based on productivity so we gain nothing unless we benefit from asymmetric information or firm-specific productivity

The real issue is not low wages but whether labor is cost-effective with low cost per unit of output

1 Productivity independent of coworkers 2 Depends on coworkers 3 Independent but depends on capital

Hire up to the point where marginal benefit equals marginal cost

Availability of workers and the financial condition of the firm

Use credentials and evaluate productivity through screening and probation

Specific job-related skills and general ability to learn new things

Application tests, psychological profiling, and personal interviews

Both the employer and the employee share the benefits and costs

Hiring workers temporarily and keeping them only if performance is sufficient

Termination can be costly, so hiring via a temp agency may reduce risk

1 Up-or-out promotion, 2 Only survivors are promoted, 3 Large raise after promotion

Workers reveal type by accepting offers that allow firms to screen and match better

Low ability types are discouraged, high ability types are motivated to apply

Employees pay most costs and receive most benefits, firms may also benefit

Low quality types imitate high quality, high quality types try to stand out

No distinction between types, no one has incentive to signal or get credentials

Quicks signal and distinguish themselves, slows do not signal

Firms where differences in employee talent strongly affect productivity

Workers skillset, personality, and geographic preferences

Knowledge, skills, and traits in people that enhance well-being and productivity

Direct costs like materials and trainer pay, indirect costs like time away from work

General is valuable everywhere, firm-specific only valuable in current firm

Quitting costs, strong match, specific training, or cost advantages

Normal flows like hiring or retirement, or layoffs and buyouts

Sorting, technical change, organizational change, hierarchy, specific capital

Better pay, treat as partners, meet preferences, consider implicit contracts

Noncompetes, collaboration, rotation, standardization, knowledge management

Up-or-out firms, motivation in volatile sectors, reputation building

Raider must value the worker more, and current firm must not overpay