Personnel Economics: The Economist's View of Human Resources

34 Pages Posted: 3 Dec 2007 Last revised: 6 Feb 2008

See all articles by Edward P. Lazear

Edward P. Lazear

Stanford Graduate School of Business; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Kathryn L. Shaw

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: November 2007

Abstract

Personnel economics drills deeply into the firm to study human resource management practices like compensation, hiring practices, training, and teamwork. Many questions are asked. Why should pay vary across workers within firms--and how "compressed" should pay be within firms? Should firms pay workers for their performance on the job or for their skills or hours of work? How are pay and promotions structured across jobs to induce optimal effort from employees? Why do firms use teams and how are teams used most effectively? How should all these human resource management practices, from incentive pay to teamwork, be combined within firms? Personnel economics offers new tools and new answers to these questions.In this paper, we display the tools and principles of personnel economics through a series of models aimed at addressing the questions posed above. We focus on the building blocks that form the foundation of personnel economics: the assumptions that both the worker and the firm are rational maximizing agents; that labor markets and product markets must reach some price-quantity equilibrium; that markets are efficient or that market failures have introduced inefficiencies; and that the use of econometrics and experimental techniques has advanced our ability to identify underlying causal relationships.

Suggested Citation

Lazear, Edward P. and Shaw, Kathryn L., Personnel Economics: The Economist's View of Human Resources (November 2007). NBER Working Paper No. w13653. Available at SSRN: https://ssrn.com/abstract=1043343

Edward P. Lazear (Contact Author)

Stanford Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Kathryn L. Shaw

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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