Lecture 1: Hiring & Decision Making
Hiring personnel:
Goal is to minimize the ratio between W/Q
W = wages you are paying
Q = productive you get in return
Wages (W):
Not only monetary but also non-monetary wages play a roll
Numeric value can be put on monetary wage but not on non-monetary
Amount of non-monetary wage depends on the job design
o Autonomy, competence, purpose, relatedness
Productivity (Q):
We don’t know this
Most of all for new hires
Most of all university students -> employer does not have a lot of information
Students have more information about their capabilities than the employer
How do you know W & Q?
Easier said then done
There is always a-symmetric information
Temporary contracts:
This helps measure productivity and test whether employee meets your expectations
Contract is being transfer into better contract after 6 months/12 months ->
eliminates hire of cheap labor
Promise to offer contract with relative high wage after this probation time
Low performing job applicants = kicked out of the probation time
This job is not attractive for low performers -> these will therefore hopefully not
apply
Self selecting: not attractive for underperformers (this should reduce job applicants)
Decision making of hiring or not hiring:
Positive outcome = hire employee that fulfils requirement
Negative outcome = employee is not hired
False-Positive = employee is hired but ends up performing poorly
False-Negative = good candidate is not hired & employer misses out on potential
contributions
Hierarchal Structures Flat Structures
More interview rounds done by many Limited number of interview rounds
different employees You will have less false negative
Different layers review the candidate more But higher false positives (more employees
opinions involved that cannot do the job)
Reduction of false-positive
, Increase false-negative
Who should you use? Depends on the job design
Relationship between false positive & Influence of extra information
false negative:
The more layers of selection you have the
lower the probability is that you will get an
employee that is bad for your firm
Because the employee needs to prove
themselves in every stage
Depending on jobs design:
Hierarchy (guardians) Flat (stars) Second Opinion (footsoldier)
Bad performance can greatly Bad performance does not Most jobs are design to have
harm organization you don’t have a great infleunce on a realtive impact
want to have false-positives organisation Using a second opinion can
Don’t really care about false- Hiering someone that is be useful
negatives as not greatly not that good may have
infleunce on outcome of over pay but doesn’t hurt
orgnaizatin the firm
, Lecture 2: Investment Into Skill & Managing Turnover
General human capital:
Investment into education
Employees can use this knowledge anywhere in the firm, industry, etc.
Firm specific human capital:
Only learnt in specific company
Cannot be used anywhere else making it unattractive for the job market
Firm Specific Human capital:
Implicit contract -> both parties need to share cost & profit
Creates hold-up problem
o Employee and employer therefore need to split both costs & benefit
o Making them both dependent on one another
o Employer is actively involved in making the decision
o This reduces turnover -> unattractive for employee to leave and loss for
company too
Conclusion article Van der Meer:
Years spent in education have a rather small effect on wages -> years spent in
education longer than necessary to obtain a degree will have an effect on wage
Results don’t support human capital model but strongly support signaling model and
credentials
o Human capital Theory -> years spent in education matter & predict that the
special return to education equals the private return
o Credentialism & signalling model -> educational degree matters & predict that
the social return of education will not equal the private return
Educational degrees are credentials that prove someone’s ability and
productivity
Social return to education is higher than private return -> improved match between
employees and employer due to signalling
o Education is very informative signal on the labor market that improve this
match and thereby enhances the social return to education
Managing turnover:
Turnover is not always bad according to Bax & Glebbeek
Every organization/firm has an optimal amount of labor turnover
Firm that has a very low (but also too high) turnover will in the end be less profitable
Efficient mix of old and young employees exists
They are complements, but the mix differs from firm to firm
Labour turnover versus company performance
o This has an inverse u-shape
o Meaning that too low and too high turnover can be bad for a firm
o Too low: no new ideas, no changes, less drive
o Too high: cost of employing new staff, training new staff, team dynamics
Hiring personnel:
Goal is to minimize the ratio between W/Q
W = wages you are paying
Q = productive you get in return
Wages (W):
Not only monetary but also non-monetary wages play a roll
Numeric value can be put on monetary wage but not on non-monetary
Amount of non-monetary wage depends on the job design
o Autonomy, competence, purpose, relatedness
Productivity (Q):
We don’t know this
Most of all for new hires
Most of all university students -> employer does not have a lot of information
Students have more information about their capabilities than the employer
How do you know W & Q?
Easier said then done
There is always a-symmetric information
Temporary contracts:
This helps measure productivity and test whether employee meets your expectations
Contract is being transfer into better contract after 6 months/12 months ->
eliminates hire of cheap labor
Promise to offer contract with relative high wage after this probation time
Low performing job applicants = kicked out of the probation time
This job is not attractive for low performers -> these will therefore hopefully not
apply
Self selecting: not attractive for underperformers (this should reduce job applicants)
Decision making of hiring or not hiring:
Positive outcome = hire employee that fulfils requirement
Negative outcome = employee is not hired
False-Positive = employee is hired but ends up performing poorly
False-Negative = good candidate is not hired & employer misses out on potential
contributions
Hierarchal Structures Flat Structures
More interview rounds done by many Limited number of interview rounds
different employees You will have less false negative
Different layers review the candidate more But higher false positives (more employees
opinions involved that cannot do the job)
Reduction of false-positive
, Increase false-negative
Who should you use? Depends on the job design
Relationship between false positive & Influence of extra information
false negative:
The more layers of selection you have the
lower the probability is that you will get an
employee that is bad for your firm
Because the employee needs to prove
themselves in every stage
Depending on jobs design:
Hierarchy (guardians) Flat (stars) Second Opinion (footsoldier)
Bad performance can greatly Bad performance does not Most jobs are design to have
harm organization you don’t have a great infleunce on a realtive impact
want to have false-positives organisation Using a second opinion can
Don’t really care about false- Hiering someone that is be useful
negatives as not greatly not that good may have
infleunce on outcome of over pay but doesn’t hurt
orgnaizatin the firm
, Lecture 2: Investment Into Skill & Managing Turnover
General human capital:
Investment into education
Employees can use this knowledge anywhere in the firm, industry, etc.
Firm specific human capital:
Only learnt in specific company
Cannot be used anywhere else making it unattractive for the job market
Firm Specific Human capital:
Implicit contract -> both parties need to share cost & profit
Creates hold-up problem
o Employee and employer therefore need to split both costs & benefit
o Making them both dependent on one another
o Employer is actively involved in making the decision
o This reduces turnover -> unattractive for employee to leave and loss for
company too
Conclusion article Van der Meer:
Years spent in education have a rather small effect on wages -> years spent in
education longer than necessary to obtain a degree will have an effect on wage
Results don’t support human capital model but strongly support signaling model and
credentials
o Human capital Theory -> years spent in education matter & predict that the
special return to education equals the private return
o Credentialism & signalling model -> educational degree matters & predict that
the social return of education will not equal the private return
Educational degrees are credentials that prove someone’s ability and
productivity
Social return to education is higher than private return -> improved match between
employees and employer due to signalling
o Education is very informative signal on the labor market that improve this
match and thereby enhances the social return to education
Managing turnover:
Turnover is not always bad according to Bax & Glebbeek
Every organization/firm has an optimal amount of labor turnover
Firm that has a very low (but also too high) turnover will in the end be less profitable
Efficient mix of old and young employees exists
They are complements, but the mix differs from firm to firm
Labour turnover versus company performance
o This has an inverse u-shape
o Meaning that too low and too high turnover can be bad for a firm
o Too low: no new ideas, no changes, less drive
o Too high: cost of employing new staff, training new staff, team dynamics
