Personnel Economics (PER)

Edward Lazear, Director

Much of the theory in labor economics over the past twenty years has been in personnel economics, which is the application of economic theory and principles to the human resources problems of the firm. There has been limited empirical work in this area, in large part as a result of a shortage of data that enables testing of the theories.

Over the past few years, two new types of data sources have become available. The first consists of detailed data from individual firms that can form the basis of econometric case studies. These data provide great detail, often on the production environment and practices of firms studied. As a result, they allow researchers to examine the effects of various practices on productivity. Examples of such practices are changing the compensation structure, instituting the use of teams and job rotation, and empowerment of the workforce through less hierarchical command structures.

The second type of data relates to entire countries or to large subsets of workers and firms within the entire country. One difficulty with case studies is that the firm may be idiosyncratic and atypical of the economy as a whole. The country-wide data sets allow researchers to examine issues that require knowledge of the entire firm. For example, suppose one were interested in understanding the structure of wages within a firm. How much variation is there within firms and how much between firms? How homogeneous are firms in the choice of workers? How sensitive are the typical firm's wage structure to general market conditions? How does a workers relative position in a firm affect his or her promotion and retention probabilities? There are many questions of this sort that are first order, but that we have been unable to answer because of lack of data. The new country-wide data sets make investigation of these issues possible. Because data on the entire firm are available over a large number of firms and over an extended period of time, questions that relate to firm structure and to the importance of a workers position within the firm can be answered. There are now data sets from around ten countries, including the US and some European countries. Researchers from Europe have been included into the group and they will analyze the data from their own countries.

One product of the group for the immediate future is a book that will do cross-country comparisons on some basic issues that relate to wage structures and hierarchical patterns. The book will be the first of its kind and should shed light on an area that has been in complete darkness until now.

Our group has been meeting twice per year. One meeting occurs in conjunction with Labor Studies during the summer institute. Another takes place in early Spring. The group includes participants from Labor Studies and other groups and has combined both theory and empirical papers effectively during its first two meetings.