Economics 442/542: Labor and Human Resource Economics
NOTE TO STUDENTS ENROLLING FOR SPRING 2002
The required text is CONTEMPORARY LABOR ECONOMICS by McConnell, Brue, and
MacPherson (5th edition). You are required to have a financial calculator
capable of computing NPV from uneven cash flows. If you are proficient, use any
calculator you want, but I only teach from a Texas Instruments BAII-Plus.
Extensive spreadsheet projects/exercises will be required. A disk of data will
be given for this purpose. A working email address and Internet access are also
required.
If you have a disability which may require accommodation with respect to completing
the requirements of this course under the provisions of the Americans with
Disabilities Act, contact the instructor immediately. With respect to this and
other matters I can be reached at:
rlhannah@mtsu.edu Homepage
Phone: 615-898-2228 (office)
CONTENTS OF THIS DOCUMENT
Course Objectives
Grading Criteria
Exam Examples
Syllabus
MTSU Journals & Documents
Lecture Summaries and Additional Comments
Labor/IR/HR Internet Resource Page
International Employment Relations
Course Objectives
This course is a rigorous application of economic principles to labor
markets and to the development and allocation of human resources. As such,
theories specific to this content will be reviewed and incorporated into
analyses. The analytic tools utilized include time values, growth rates,
regressions, and the integration, transformation, and manipulation of economic
data. Furthermore, the basic mechanics and needs for Human Resource
Information Systems will be covered, particularly within the spreadsheet
context. As much as is feasible I have tried to introduce several topics
in a multi-disciplinary context.
Grading Criteria
Subject to change to accommodate class size/composition/location.....
An A is from 90-100 with successively lower grades in 10 point increments.
A numeric grade is assigned to each graded item. Only in the most extraordinary
circumstances will make-up exams be given. Instead, any missed exams will
incorporated into either the next exam or the final. This means any missed exam
adds more hours of testing at the later time. Each day a project summary or
paper is late incurs an automatic deduction of 10 points from the grade for that
assignment.
Grade Weighting--These may shift once I have a better idea of class size
and skills.
Undergrads Grads
Percent Percent
In-class presentation 10 10
In-class participation 10 10
TV presentation 10 10
Analytical projects 20 10
Exam 1 10 10
Exam 2 10 10
Final 20 10
Paper (3 for grads) 10 30
In addition to the above criteria I add bonus points to the final
grade averages for correctly responding to questions most often posed via
e-mail. I may also subtract points for failure to complete a specific
assignment. These are most generally only in one point increments.
The graded projects will be determined during the semester and
likely based on the datafiles given to you.
Syllabus
I strongly emphasize the importance of keeping current on readings.
You are responsible for the material included below even if it is not covered
in class. This course focuses on hands-on applications and in-class exercises
and is thus not taught in a recurring lecture format. Bring your data
disks to each class. I advise making a backup copy and bringing a blank
disk as well.
I have not yet scheduled the TV studio for presentations. Schedule will adjust
accordingly.
01/08___Introduction___________________________________________________________
Course overview, financial calculator, and spreadsheet use.
Chapter 1: Introduction to Labor & HR Economics
Lecture: Why Combine the Study of Labor & HR in Economics?
Internet Resource: IR_HR Page
Labor Markets: simple graphics of supply and demand
Chapter 2: Introduction and assignment of presentations for next week.
01/15___Psychology & the Economics of Labor Supply____________________________
Presentations
Chapter 2: Theory of Individual Labor Supply.
I am less concerned with the details of the income and substitution
effects in the work-leisure model than your ability to understand and
manipulate the model mechanically and explain how the model
explains different labor market behaviors.
Lecture: Why Is Individual Labor Supply Applied Micro-econ?
Survey Design And Empirical Analysis Case: Analyzing the Labor
Market Behavior of High School Students.
Chapter 3: Introduction and assignments.
01/22___Sociology & the Economics of Labor Supply__________________________
1st Graduate Paper Due.
Presentations
Chapter 3: Population, Participation Rates, and Hours of Work.
Lecture: How Are Labor Force Activity and Socio-economic
Change Entwined?
Internet Resource: Current Data
01/29___Finance, Statistics,and Economics__________________________________
Review: time values & regression analysis: class practices.
Chapter 4: Introduction and assignments
02/05___Economic Analysis of Historical Data & Introduction to Human Capital__
Presentations
Project: Spreadsheet analysis of data in book covers,
(file: 442macrodata).
Chapter 4: Labor Quality: Investing in Human Capital.
Lecture: Are Workers an Investment or Expense?
Lecture: How Is the Value of Human Capital Measured?
Forensics Introduction and assignments
02/12___Exam 1: one hour_____________________________________________________
Forensic Economics___________________________________________________
Presentations
Project: 442Forensics1 file
Chapter 5: The Demand for Labor.
Lecture: What Motivates Firms to Demand More/Less Labor?
Math Introduction and assignments:
Earnings growth rate computational methods.
02/19___Math, Actuarial Science, and Economics__________________________________
Presentations
2nd Graduate Paper Due.
Compare career choice with the _Occupational Outlook Handbook_
Actuarial tables, interest rates, earnings growth rates.
Conceptual modeling.
National Asssn. of Forensic Economists
Project: 442Forensics2 file.
___A Few Labor Market Model Variations_______________________________
Chapter 6: Wage Determination and the Allocation of Labor.
Lecture: What Really Determines Pay?
Chapter 7: Alternative Pay Schemes and Labor Efficiency.
Lecture: What Is Employment Event Analysis?
Project: Regression analysis and pay, Forensics2 file.
03/05___Exam 2: 2 hours___________________________________________________
03/12___Human Resource Economics: Analysis of Total Compensation__________
Project continuation: Expanding the forensics model by incorporating
employee benefits into spreadsheet analysis, 442Forensics2 file.
Lecture: Why Are Benefits So Important?
Internet Resource: Benefits on the Net
03/19___Human Resource Information Systems & Equity Analysis_______________
Lecture: Why Is HRIS Crucial for a Competitive Edge?
Project: equity analysis--442equity file.
Chapter 8: The Wage Structure.
Lecture: Do Teams Homogenize Labor and Pay?
Chapter 9: Mobility, Migration, and Efficiency.
Lecture: Is Mobility Good for the Economy, for Firms,
for Workers?
03/26___Spring Break_________________________________________________________
04/02___Unions & Economics___________________________________________________
Chapter 10: Labor Unions and Collective Bargaining.
Lecture: Why Is Differentiating Collective vs. Individual
Behavior, Rights, and Choices Important?
Chapter 11: The Economic Impact of Unions.
Lecture: Are Unions Finished in the U.S.?
Internet Resource: Outsourcing and the GM Strike
Project: 442macrodata file.
Project: 442PPCdata file.
04/09___Government Regulation of Labor Markets______________________________
Chapter 12: Government and the Labor Market: Expenditures/Taxation.
Lecture: How Do Taxing, Spending, and Subsidizing Impact
Labor Market Behavior?
I'net Res: U.S. House of Rep. Law Lib. & CFR--Searchable
Chapter 13: Government and the Labor Market: Legislation/Regulation.
Lecture: Do Regulations Protect Workers?
Resource: U.S. Supreme Court--Searchable
Project: Historical analysis of minimum wages, 442macrodata file.
Employment Law
04/16___Chapter 14: Theories of Labor Market Discrimination.
Lecture: Is Discrimination by Employers Rational Economic
Behavior?
Internet Resource: Statistical Tools
Chapter 15: Women, Blacks, and the Labor Market.
Lecture: Have Working Females Forever Altered the Work
and Home Environments?
Project: 442Econdata, 442Findata, 442Profitfile
04/23___Undergraduate papers due.
3rd graduate paper due.
Critiques of Orthodox Wage Theory--comment.
Lecture: Which Theory Is Right?
Chapter 16: Job Search: External and Internal.
Chapter 17: The Personal Distribution of Earnings.
Lecture: Who Are, and Will Be, the Winners and Losers?
Project: Labor's income share (file: Macdata)--ungraded.
Measurement examples: Thiel Index, Gini Coefficient, CV
Chapter 18: Labor Productivity, Wages, and Employment.
Lecture: What Do the Numbers Tell Us?
04/30___Macroeconomic Issues____________________________________________________
Chapter 19: Employment and Unemployment.
Lecture: What Are the New Dimensions of Unemployment?
Internet Res: Nat. UI Info. Tech. Support--Searchable
Wages and Inflation--comment.
Lecture: What Hath Reengineering Wrought?
Lecture: Are ER/EE Relations Based on Secrets or
Information Sharing?
05/07___Final
Lecture Summaries and Comments
Why Combine the Study of Labor Economics and HR Economics?
A conventional wisdom seems to have jelled emphasizing that
resources such as capital, information, and technology have become
globally mobile. Thus in the context of global competition, a firm's or
nation's, labor force appears as the production factor which will
differentiate robust from lackluster economic performance, or perhaps
even economic survival. The ring of truth in this view has an undertone
of a considerable irony in that the traditional courses of study in
industrial relations, labor relations, and labor economics are in
decline, at least in the U.S. While there has been a consequent rise in
the more narrowly defined studies of HR in Management, Industrial
Organization, Psychology, and other disciplines, the sound integration of
these courses of study with the broader market forces and macro-economic
policy making lies fallow.
Unlike traditional HR courses which focus on the nuts and bolts of
practical management, and unlike traditional labor economics courses which
focus exclusively on refined theories, this course integrates the interaction
of the internal HR dynamics of a firm and the realities of the external
labor market. This effort is largely accomplished via a series of readings,
projects, and insights into resources which the student should learn to draw
upon in refining his/her analytic skills and penetrating thought processes--
and hopefully advance the prototype employee who is expected to have
21st Century skills relevant to the subject matter of this course.
In many other ways this course is unconventional. One example is
that you must learn to find, analyze, and synthesize information
in an electronic world. Thus, the course is a "living" instructional
vehicle intended to reflect the emerging world of work and how you must
apply intellectual rigor (the economics dimension) and practical insights
(the HR dimension). A second example is that the consumption of class
time with lectures is minimized. You will find a great proportion of
class time will be devoted to project analyses, as individuals and in teams,
to presenting results and leading discussions of these analyses, and to
Q&A of and critique from the instructor. Toward that end, these electronic
lecture summaries and additional commentary is placed at your finger tips.
Why Is Individual Labor Supply Applied Micro-economics?
The short answer to this question is that, with very few
exceptions, most of us have to make decisions about how to allocate our
time between work and leisure (or more broadly speaking, among paid work and
non-paid activities). The work-leisure model is a simplistic way to
express this trade-off of choices, and the interaction of wage incentives
and income subsidies.
The work-leisure model is a very narrow expression of how an
individual might react to changing circumstances by increasing or reducing
time allocated to paid work. This should initially be distinguished from
changing wage rates in the market model, which not only reflects the
aggregation of individual psychological preferences, but also reflects
the sociological (e.g., discrimination) and demographic
(e.g., cohorts by age groups) determinants. A good
question for you to think about is how the individual and market models
are compatible from different disciplinary perspectives.
The work-leisure model does not reveal the time
allocation from a family or living partnership allocation
perspective--e.g., how might one spouse alter behavior when the other
enters or leaves the labor market? Still, the model is very powerful in
exhibiting a rationalist's view of behavior under a wide variety of
circumstances.
Finally, recognize that the choices (or decisions) implied in the
model may reside with the employer or employee. This is a critical and
practical aspect of the model in explaining suboptimal outcomes.
How Do Labor Force Activities Impact Macro-economic and Societal Change?
At the macro level the focus is on demographic and labor market
participation trends (see 442macrodata file). The level of employment,
relative to the available pool of workers, is often a measure of economic
growth and social welfare. On the other hand, socio-economic analysis is
often concerned with the distribution of income derived from work and
even non-work sources. In addition, good policy making must address a
myriad of issues ranging from job protection via import restrictions to
the preparedness and competitiveness of the American work force in the
global economic environment.
Empirical evidence suggests that import restrictions can protect
jobs, but at a very high price--far exceeding the income received by
those protected workers when higher consumer prices and the cost of
regulation is included. The work force preparedness issue is more
ambiguous. A better educated work force can be more productive, and
theoretically higher paid. But the question is, educated for what? Will
THAT many high tech jobs abound? Will the service industry continue to
be the job generation engine in our economy? Should we be educating
workers to be even more mobile in the labor market (no company loyalty,
get all the monetary reward you can up front, and bail out any time a
better offer comes along--new guerilla tactics for survival in the job
market of the 21st century?), and develop corresponding macro policies to
support this increased mobility (immediate vesting and portable pensions,
universal health care, and liberal tax deductions for geographical
relocation?). As compared to most industrialized countries, the U.S.
doesn't really have a macro labor force preparedness policy. We still
tend to let the market stay unfettered.
From a micro perspective we see dramatic shifts in the nature of
work. More technology is only one dimension. More and more jobs do not
fit the traditional 40 hour/week model, instead fitting a diverse pattern
of different hours of the day, days of the week, part-time, and temporary
pattern. Furthermore, work which is geared to information lends itself
to severing the relationship of the performance of that work from a
specific location. (For example, I'm sitting at home having a cup of
gourmet coffee while I create this document, when in fact I could be
anywhere in the world doing the same thing.) Although the subject of
another course (Industrial Relations), another point to be made is that
our whole structure of labor law and related institutions governing the
work place should be re-examined with this transition in mind.
Despite the prominence of the issues above, one that is perhaps
even more important is the impact of the changing labor market upon
family life, and vice versa. The increased breakdown and sometimes
reblending of families, and the demise of the dominant "traditional"
model of one spouse (usually male) participating in the labor market and
one working at home (usually female), have delivered to us a host of new
issues in modern economies. Two common ones are child care and
housework.
Solutions to child care (and the increasing elder care) problem
can not be solved in the family itself. Hence, one avenue of increasing
pressure is to solve it through the labor market, via employer provided
services, or at a minimum through such plans as flexible spending accounts.
Empirical evidence suggests that women who work 40 hours in the
labor market also tend to work on average 30 hours in the home. This "70
hour work week" is a world-wide phenomenon in industrialized societies.
While in some societies men have slowly increased their level of
housework if their spouse is working in the labor market, the
measurements still indicate they assume only a fraction of the female
housework load.
Are Workers an Investment or Expense?"
"Workers are our most valuable resource." How many times and
places have we all heard that slogan? Whether genuinely conveyed or
mindless management babble, we should look deeper into the meaning.
Strictly speaking we can think of resources (e.g., labor) as either idle, or
used in a productive effort. Idle workers are of course unemployed workers.
Value is imputed as to time, and place, and circumstance. From
an accounting perspective labor is recorded as an expense, and economic
theory is pretty clear about the position the profit maximizing model of the
firm takes on expense. As a practical matter the chain of causality is
obviously more complicated. For example, why spend more money (more
expense) on an expense (e.g., worker training)? You should be able to
reason this one through.
More of a human interest story is how a person can be valuable
one day and unemployed the next. Once productive skills can become
obsolete overnight. Want an example? How about an office suite with
several managers (who don't type and don't use computers), each with
secretaries. Add a LAN, Internet, and direct data base access. Result?
It is not only the drive to reduce costs which places workers at
risk. Product market shifts are just as devastating. Witness the
significant loss of manufacturing jobs in the U.S. These shifts are
manifested either in movement of production off-shore, or the obsolescence
of products in the sense that consumers no longer demand them.
Even if we take the position that workers are, or should be, an
investment, there is a significant difference between human capital and
physical (or financial) capital--that of ownership and mobility. This
introduces an element of risk to a firm's investment activities in
people. The text yields some very practical examples of how this risk is
managed.
How Is the Value of a Human Life Measured?
This topic is distinguished form the measurement of human capital
as presented in McConnell and Brue. As we have seen, the measurement of
human capital takes on many forms. In the broadest sense we must
be clear about the returns to society, to the individual, and to the
firm. Empirical studies have addressed all three.
Valuing human life is another matter and comes up in legal cases
involving wrongful death, or personal injury which diminishes one's
future income stream. Essentially, one must compute the net present
value (NPV)--computationally very similar to determining the value of an
earnings stream under different educational or training scenarios.
For example, the data required are: (1) actuarially determined life
expectancy given the age, sex, race, and possibly even education at death;
(2) work life expectancy; (3) relevant participation rates; (4) expected
inflation rate, discount rate, and earnings growth rate, including benefits
valuation; (5) expected consumption from the earnings stream, and (6) any
other information which might impact the NPV. This area of analysis is know
as forensic economics. Can you explain why the above data are needed?
What Motivates Firms to Demand More or Less Labor?
The demand for labor is probably the most technical subject in
this course. Understanding the technique requires a good grounding in
micro production theory, from which we formulated the very general "iron
law" of profit maximization (mr=mc), which is in turn dependent on
optimization theory (MPPx/Px=MPPy/Py=...MPPz/Pz). One crucial
differentiating assumption to keep in mind is whether our analysis is in
competitive or non-competitive markets, of particular importance in
grasping the divergence in VMP and MRP. All this in mind the simple
answer to the above is labor demand is predicted on the profit motive,
which broadly construed might mean profit maximization (or understanding
the implications of departure therefrom), or loss minimization.
Another crucial (and often troublesome) assumption made to
operationalize the related stylized models is labor homogeneity.
Students should be capable of understanding departures from the
homogeneity assumption.
There are three facets of McConnell and Brue's chapter 5
deserving of supplementary comment and clarification. One is the
treatment of time. The models are presented in the context of
instantaneous adjustment and decisions, not sequential events. For
example the decision to hire X units of labor implies a one time
decision, not a decision on already having hired X-1 units. Remember in
the competitive model, perfect information is assumed.
Second, I think the output and substitution effects are more
intuitively grasped in the isocost/isoquant framework. The graphics will
be covered in class.
Third, building on item two, the Cobb-Douglass production
function [lnQ=lnA+alnK+blnL in log form] is a more realistic expression
of what firms can do. Can you explain why? Why is the log form
convenient? Can you re-write this in exponential form? Do you remember how
to derive the marginal productivities from the function? What do the
coefficients represent? What does the sum of the coefficients represent?
What Economic, and Non-economic, Forces Determine Pay?
From the market oriented labor economist's perspective, two
perspectives are important in addressing this question. First, the
external market (the world of supply and demand) is the source of the
marginal worker which is hired into the firm. In order to hire that
worker the firm must pay the market wage (the opportunity cost in leisure
or alternative employment of this worker). One problem that arises in
this context is when the market wage is greater than the wage of
comparable employed workers within the firm (the equity issue). This is
where the second perspective comes into play, those economists who focus
on the firms' internal labor markets--the administrative rules,
contracts, regulatory compliance, ad hoc decisions, etc. which are alien
to the theoretical free market. Obviously, many of these institutional
factors are very important non-market determinants of pay.
Perhaps this second perspective can be brought into sharper focus
by considering the economist's and sociologist's view of what determines
pay inside the firm. The market oriented economist would argue that the
(market determined) level of pay determines the status, while the
sociologist would argue that it's the other way around--status determines
pay. The practical manifestation of this dichotomy is whether the job
(paper description, points, or budgeted line) or the person should determine
pay.
As you think about what determines pay from the market
perspective, due care should be exercised in recognizing the assumptions
in the market model--e.g., perfect information, mobility, flexible wages,
and homogeneity of labor. As these assumptions are relaxed, you should
be prepared explain the implications and whether the viability of the
market model remains in tact.
If your intellectual center of gravity leans toward non-market
explanations, then I think the test is "what other factors"? Obviously,
variables such a seniority, education/training, internal politics,
discrimination, and luck, are important. But, as you have learned, these
are not so easily measured or interpreted. The usefulness of
investigating these variables may also lie in other motives, for example,
monitoring the internal equity of pay within an organization.
The issue of equity may well be the pay issue of the decade. The
intellectual heritage on this topic is deep, at least as far back as
Aristotle. As a practical matter, if we have sufficient data, we can use
this information to assess whether we think some individuals have fallen
through the cracks of the pay system. In a technical sense, equity
becomes a residual issue after we have accounted for the other impacts on
pay--e.g., longevity, credentials, performance, merit, etc.
What Is Employment Event Analysis?
In a labor economics context, in thinking about why workers are paid
more or less we generally pursue the standard theories and analyses of
human capital, discrimination, market power, etc... An perspective which
is of interest is the examination of the particular employment events
which impact pay. I have seen no formal analysis of event analysis to
pay determination, so this synopsis borrows heavily from finance theory.
The article from which the terminology and concepts were extracted for
this summary is, "Event Studies: A Review of Issues and Methodology," by
Pamela P. Peterson, published in the _Quarterly Journal of Business and
Economics_ (vol. 28:3, summer 1989, pp. 36-66).
In finance theory, events are characterized as the release of
information, or corporate or government actions which impact securities
prices. In labor theory we might characterize an employment event as a
change in pay caused by a change in employment status (job change,
promotion/demotion, merit, equity, pay-for-knowledge, etc...). We could
push the analytics to the extreme and think of the expectation of
employment events to capture the earnings growth potential, and
consequently compute a NPV of labor, essentially the human capital
approach--but with the explicit understanding that some employment events
may not have any relationship to the acquisition of human capital.
Following through the mechanics of finance theory, we then
hypothesize what would be a normal rate of return (in labor, earnings),
and then focus on event analysis which indicate abnormal returns. This
conjures up the necessary statistical adjustments for random/nonrandom
observations and normalization. The mechanics then are dependent on
selecting the period of analysis (in the case of a worker, the work life
expectancy or some shorter period), devising a way to measure the
cumulative effects (e.g., how many periods does a promotion impact pay?),
the sequence of events (e.g., annual increase on top of promotion, or
vice versa?), and the interdependence of events (e.g., the "near"
simultaneity of the change in pay from a promotion, equity adjustment, and
completion of training).
Clearly, in this approach one's worth (or wealth derived from an
earnings stream) can be enhanced or devalued by random events. Some may
call this (good or bad) luck. Obviously, we do not have perfect
foresight, or we would always choose to cause, or participate in, those
events which only served our self interests. But what about hindsight?
Would examining the histories of individuals yield any insights? A
descriptive study of university staff employees which I conducted will be
reviewed in class to draw out some of these points. ("Insights for
Analyzing Earnings Growth Rates: A Case Study," Richard Hannah, _CUPA
Journal_, Winter 1994, pp. 35-41).
Why Have Benefits Become So Important?
Prior to World War II, employee benefits did not command a
significant presence in the total compensation picture. Some unions,
such as the United Mine Workers of America, had negotiated "fringes" but
by and large the seeds for economic growth of importance were planted in
the wage and price stabilization policies as regulated by the National
War Labor Board during the war. Benefits were seen as something of a
compromise in lieu of wage increases.
The passage of the Social Security Act in 1935, which served as a
model, did spillover into the demand for retirement programs for
workers. But lest we forget, the SSA was a policy shift as much to get
older workers off the payrolls and hence spread employment around, as a
system designed to provide minimal security for elderly workers.
Certainly, the system's founders never envisioned the degree of
entitlements, or the cost, we witness today. Also of importance is the
realization that Social Security was, and is, not designed to be the only
source of retirement income for workers. Essentially, the system was
envisioned as a safety net only, a part of a "three legged stool" of
retirement security, the other two legs being personal savings and
pension systems provided through employers.
Since WWII, the growth of employee benefits has been phenomenal.
The traditional retirement plans and insurance plans and now but a part
of more comprehensive packages including flex plans, EAP's, paid and
unpaid time off. Categorizing the basic division of benefits into two
broad categories is useful. The first is the legislatively mandated
benefits--FICA, Workers' Comp, Unemployment, etc... The second category
is benefits either negotiated by unions (and even individuals) or offered by
employers. In the past half century tax code has significantly impacted
the spread of benefits too. Whether or not a benefit cost can be
deducted as an employer expense is very important in the economic
incentive to offer the benefit.
As a percent of total compensation, some estimates of benefits
are 30-35 percent, although with the rise in temps and part-time workers,
and the cost shifting of recent years, this number is perhaps too high
for the U.S. as a whole.
Major issues of the past decade which continue to reshape
benefits structures are:
National, state, and local subsidized health care
Unfunded liabilities which must be quantified
Blended families & domestic partner status
Portability and vesting
Social Security viability
Impact of pension funds on financial markets
Day care & elder care
Teleworking
Plan governance & equity
Cost shifting
Complexity, distribution, education, and control of benefits information
Tax policy and federal debt reduction plans
Changing workforce demographics
Keeping up with regulatory requirements
Why Is HRIS Crucial for a Competitive Edge?
Human Resource Information Systems (HRIS) figure prominently into
the competitive equation in two ways. Historically the personnel
function has been a paper based bureaucracy. In today's world no such
realm is long for the reengineer's knife. Transforming this aspect of
the HR function is a pure matter of efficiency at a minimum, and
potentially even a matter of strategic importance if the pundits are
correct that the only place to develop a competitive edge is with employees.
One of the great difficulties of developing HRIS has been the
fragmentation of record keeping in different parts of an organization.
For example, the needed information on historical pay records typically
reside in the payroll office, the budgeted position data in the finance
department, and the employee's file with other background information on
benefits, training, and other employment events, in the HR department.
In recent years the HRIS software supplied by vendors has
expanded greatly, and an annual survey can be found in the _Personnel
Journal_. This software varies from narrow functions, such as applicant
tracking, to full service packages purported as capable of rendering
integrated historical backgrounds and report summaries. Of course many
organizations have opted to develop their own systems, with varying
degrees of success. The crucial point is that reports and analyses can
no longer suffer the time lags and resource consumption required in
manual systems of record keeping.
Remarks on published sources: The following comments were drawn
from the referenced articles. Any professional in this area should
acquire the full text of these articles for their rich insights.
"Reengineering HRIS to Meet Future Challenges," Roger T.
Sobkowiak, _The Human Resource Professional_, Winter 1991: 65-71.
Sobkowiak points out the potential for self-correcting behavior of
employee performance (via immediate feedback through the HRIS). He also
views computerization of HR in three waves: (1) automation of what exists
already, (2) manipulation, integration, connection, and analyses of data
bases, (3) transition to "what if's" from "what was" or "what is."
Getting the most from HRIS encompasses treating applicants and employees as
customers, concentrating on decreasing response time, and the potential
to share preferred solutions rather than just results.
"Common Mistakes in Implementing an HRIS," Cynthia D. Diers,
_Employment Relations Today_, Autumn 1992: 265-271. Diers develops
several rules of thumb including: (1) the total cost of an HRIS project
is 5-10 times the software cost; (2) double the total time estimated for
each task, and (3) if the software meets 70-80% of your needs, it's a
good fit.
"Optimizing the Job-Person Match with Computerized Human Resource
Information Systems," Y. Paul Huo and Jack Kearns, _Personnel Review_,
21(2), 1992: 3-18. Huo and Kearns focus on the equilibrium and
sub-optimal conditions of the placement cycle--in particular the employee
qualifications, employee preferences/interests/mobility, and the job
data. They reinforce the conclusion that the philosophy behind automated
systems is to support the subjective decision making process, not to
replace it.
"New Competencies Define the HRIS Manager's Future Role," Joe
Pasqualetto, _Personnel Journal_ 72(1), June 1993: 91-99. In this
article Pasqualetto concentrates on the impact on the HR manager,
particularly emphasizing the need for greater functional versatility of
skills, the ability of manage global data, alignment with the corporate
mission, and helping define new relationships in the employee-employer
information flow.
"New Technology Is HR's Route to Reengineering," Samuel
Greengard, _Personnel Journal_ (July 1994) 73(7): 32c-32o. Greengard
cites dramatic examples of HRIS automation results (e.g., Sears and IBM)
of slashes in processing time, increases in staff productivity, and
resulting losses of HR jobs. He estimates such HRIS investments pay for
themselves in 1 to 5 years, but also points out unresolved issues in the
democratization of data.
A respected text treatment of HRIS is _Human Resource Information
Systems: Development and Application_ by Michael J. Kavanagh, Hal G.
Gueutal, and Scott I. Tannenbaum (PWS-Kent Publishing Company: Boston,
1990). This text is a very good elaboration from the systems perspective.
Finally, Eric Flamholtz, _Human Resource Accounting_ (Jossey-Bass
Publishers: San Francisco, 1985) offers a somewhat different view by
concentrating on the development of a formal accounting framework for
human resources--particularly crucial in mergers and acquisitions.
However, Flamholtz' direction does not seem to have entices many
practitioners, probably because the HRIS evolution has followed the path
of integration of existing, though separate, systems, and because human
resources in the last decade have been viewed less an asset than an
expense in the wake of corporate restructuring.
In the long run Flamholtz' work may find greater merit of
application, and the serious student in this field should examine his
book in detail. At a minimum he clarifies conceptual approaches for
which computational efforts can be bases. For example, with respect to the
proposition of whether people should be considered assests, Flamholtz
concludes: (1) the essential issue is identification of the services
people are expected to provide, not the people per se; (2) these services
must be measurable in monetary terms, and (3) the asset must be subject
to ownership and control of the accounting entity (even on a
probabilistic basis--i.e., employees might terminate service). See pp.
35-36.
Other resources to consider are:
_Costing Human Resources_ by W.F. Cascio (Boston: PWS Kent, 3rd ed., 1991).
_Turning Your Human Resources Department Into a Profit Center_ by
Michael W. Mercer (New York: AMACOM, 1989).
Employment Management Association (Raleigh, NC)
Hiring cost of filling a vacancy (1994 data)
public & private for exempt employees $6359
public only for exempt employees $2202
private only for exempt employees $7233
public & private nonexempt employees $1388
public & private exempt & nonexempt $3310
National Assn. of Colleges and Employers
Cost per hire of entry level college grad ('94) $6090
Do Teams Homogenize Labor and Pay?
With the exception of human capital theory, neoclassical labor
market theory generally assumes that labor is homogeneous, whether we
assume the dimension of work time, or people. On the surface this might
seem quite unrealistic, but there is a sound comparison in
practice--teams. We can classify teams into two types: (1) a well
integrated unit, but one in which the basic skills are specialized and
individuals are "permanently" assigned certain tasks (e.g., sports), and
(2) one in which labor units are substitutable, essentially equally
skilled to perform all the tasks of the work unit.
This adds a different dimension to the training models we've
examined. Under what conditions are firms likely to expend resources to
deepen skills (specialize) vs. broaden skills (homogenize)? The
practical implications of high substitutability include absenteeism
coverage, dispersed work knowledge, ease of cross-training, etc... More
difficult issues derive from developing a synchronized compensation
system, the nature of workplace discipline, and free riders. For
example, if workers are perfect substitutes, what, if any, basis for pay
differences can be justified? How much peer discipline should substitute
for traditional management discipline?
Another theoretical dimension is that we deceive ourselves by
thinking of workers on in the realm of productive traits. People are a
bundle of all kinds of attributes. When some is hired, an employer
usually gets all the good, bad, and ugly of that persons life
experiences, attitudes, and behaviors--items which must be addressed in
effective team training, because teams are arguably more sensitive to
these other (non-productive) traits than traditional production processes.
The evolution of work holds implications for the evolution of
teams as well. For example, teleworking may require new models of work
performance and coordination, perhaps in a team framework, perhaps not.
Changing demographics and the demand for greater work flexibility are a
major variable in this evolution too.
Is Mobility Good for the Economy? For Firms? For Workers?
First, the specific dimension of mobility under discussion should
be clarified. For example, mobility can be characterized as internal to
a firm--e.g., reorganizing for efficiency, shifting workers to respond to
market changes, promotions, transfers, etc.... Mobility might also be
specific to an industry--e.g., construction trade union allocation of
labor from project to project. Next, general macro-economic mobility is
of concern. The previous section on benefits addresses some related
issues--e.g., pre-existing conditions, pension portability, and pension
vesting. The text adds a time value model functionally relating
important variables in a worker's mobility decision.
Immigration policies are of importance as well. Illegal
immigration has grown into a major issue for the U.S., but keep in mind
that the history of U.S. policy and the framing of current immigration
criteria is quite different from other countries, even with respect to
Canada, with its integrated economic ties to the U.S.
Of course, one should distinguish whether mobility is voluntary
or "forced." Another more recent, and global, dimension is that of
teleworking. In the extreme, this implies that some types of work are
globally mobile--e.g., through the Internet. Distributed work, and
distributed workers, pose some interesting issues and challenges, such as
production coordination, management of employees, and the re-mixing of
work, leisure, and home life.
Is Collective vs. Individual Behavior a Useful Workplace Paradigm?
Is there something unique about the American worker's view of
workplace rights which dampens any widespread attempts at collective
action? Does a large segment of the U.S. workforce prefer to defer to a
paternalistic employer-employee framework of relations (e.g., the
"family" philosophy)? The following two resources present empirical and
intellectual perspectives. How do you place yourself on these issues?
"Empowerment is a Joke..."
"American Individualism..."
Are Unions a Dead Institution?
As the proportion of the American work force organized by unions
has continuously declined in the past several decades (about 10% of the
private sector currently), the economic and political clout of organized
labor has also diminished. While to some extent highly publicized strikes
have continued to capture headlines (probably because such strikes are now
so rare), this image is a mere reflection of the real drama that has
played out in the economy.
Union membership and power have declined due to a myriad of causes
repleat in the literature: (1) shrinkage of smokestack industries, (2)
shift to a service economy, (3) advances in technology that diminish the
demand for labor, (4) international trade and the migration of jobs
offshore, (5) archaic labor laws, (6) more aggressive anti-union
strategies by corporations, (7) demographic shifts of the workforce, and
(8) the failure of unions to modernize their strategies, structures,
and leadership.
I'd characterize this as the eight count of ten required for a
knockout. What are the other two? (9) Unions are still a viable threat
to firms with unorganized employees. As such, unions are not just a labor
market discipline in the economic sense, but also in the social sense. If
employees believe themselves to be collectively mistreated, they have an
option, call on a union to help organize and bargain. There is also the
obvious reaction to the threat effect from many employers that induces
them to compensate employees at at level and treat them with the demeanor that
diminishes what unions can offer.
(10) However awkward, unions still offer workers the ideals and
realities of democracy in the workplace. Management philosophies over the
decades have been ephemeral--e.g., welfare capitalism, human relations,
worker participation, mutual gains, synergism, teams, etc.... The idea of
democracy in the U.S. in general is permanent. However, the idea of
democracy in the workplace is the final determinant of whether unions are
in fact down for the count. Are American workers ready for a total
passive submission of their services vis-a-vis retaining some modicum of
active bargaining rooted in power relationships? Has the idea of
workplace democracy been not just knocked to the canvass, but kicked from
the ring?
One may smirk at the traditionalist nature of the idea and smugly
conclude that true partnerships between employers and workers in the
workplace have negated the need for unions and democracy. To those
believers, I'd pose an acid test question, "Who controls your pension?"
Like the aged pugilist who has fought many a good fight, maybe
unions in the U.S. no longer capture our interest, not because of their
advanced institutional years but because of the shortcoming of their
constitutional conditioning. Retirement of old champions is not a bad
option, but without new ones we are a society adrift in values in and
through which we can neither anchor, nor steer, nor compass a new course
for employment relations in the 21st century.
What Do Taxing and Spending Do to Work Incentives?
Any advanced student in the fields of IR, HR, and their
derivatives should have a framework of how government taxing and spending
impact worker behaviors. This required knowledge goes beyond the obvious
(assumed voluntary) work time allocations impacted by income taxes. The
student should be well versed in demonstrating this phenomenon in the
work-leisure model. From the taxation side, the following are additional
examples that should fit into core knowledge of the employment relations
professional.
(1) Social Security (or FICA), at a rate of 7.65% in 1998.
(2) Flexible Benefits (or Section 125) Plans.
(3) Pension Plans.
(4) Voluntary Deferred Compensation Plans.
(5) Life Insurance.
(6) Health Insurance.
(7) Stock Options, ESOP's, Profit Sharing.
Most of these are income tax issues and thus impact not just work
hour decisions, but employment termination decisions, annuitization and
other payout options, and deductions. Details are in the IRS code and
only tax experts will tarry there. But students should know the basic
principles that are applied in terms of deferred or diminished tax
liabilities, constructive receipt, and capital gains.
From the perspective of government spending, the focus here is
only on subsidies that might impact labor market behavior (again easily
demonstrated in the wage-leisure model). Subsidies come in a multitude of
forms. Examples include student loans & grants, welfare programs (e.g.,
food stamps and SSI), veteran benefits, and disability income. Students
are cautioned to separate the value judgements that are important to
policy making in these areas from the analysis of rational economic
behavior in the labor market context.
Do Regulations Protect Workers?
Let's consider the possible ways that employees might be protected
from abuses in the work environment. Abuse in this context broadly
defined to include mistreatment by the employer, other employees, or
perhaps by third parties such as vendors or contractors.
Essentially, an individual may be resourceful enough to protect
him/herself under a variety of circumstances. However, the more typical
perspectives fall into three categories. First, is that the employer
either assumes or is trusted by the employee with the economic welfare of
the employee. This can be characterized as paternalism. Second,
employees may collectively try to protect themselves by pressuring
the employer to agree to policies and procedures that protect
employees. The usual mechanism in the U.S. to accomplish such
objectives is the formation of a union. Different alternatives exist
elswehere in the world, such as works councils in Europe. Third, the
government can regulate the employment process, in effect interjecting
itself into business decisions and employee choices.
Given the kind of highly flexible economy we have in the U.S.,
even well-meaning government regulation does not ensure fair play in the
workplace, for the employer or the employee. Witness the unending flow of
federal legislation of the workplace. One would think that with all these
laws, workers would be sufficiently protected in almost any circumstance.
Yet, employer-employee relations remain anchored in the principle that the
these two parties must in the end find ways to resolve conflicts. It is
the will to comply or adapt to regulations, or a negotiated contract, by
the workers and managers (and owners) themselves that keeps fair play
viable. The option is of course legal actions, which as a primary way of
resolving conflicts would quickly bog down the court system with an much
more expensive alternative.
Is Discrimination by Employers Rational Economic Behavior?
There are subtle turns in this kind of discourse that requires
critical thought divorced from emotional reaction. In general, as most
texts describe discrimination based on social characteristics, there is no
economic ratonale for this phenomenon. However, this reasoning is heavily
dependent on the theory of production. I.e., it's simply not rational to
refuse to hire (for example) the marginal worker because of some social
charactristic if that worker is in fact the most productive worker available.
Not to do so would detract from the principle of maximizing
profit--somewhat alien in core market theory.
So why do employers discriminate? One explanation given by Becker is
that they have a "taste for discrimination" that is in part derivied from
the desire not to associate with people based on color or some other class
characteristic. The meaning goes deeper in that it's not simply a desire not
to associate (implying segregation), but a recognition of a power
relationship in which one group can disadvantage another. The irony to
observe in simple segregation is that the lower cost firms in a
competitive economy still prosper most, black or white, male or female,
etc.... Sociologists have a lot more to say about the theory of
segregation or discrimination and have somewhat standardized definitions used
by economists. It's very important to keep in mind that the use of the term,
discrimination, in price theory in economics is quite different from the
sociological overtones. Although the concept can still be applied to
labor markets, price discrimination is rooted in market imperfections of a
technical nature rather than a sociological nature.
Finally, employers may find convenience in discrimination. We can
even be more provocative and assert the "isms" of racism, sexism, agism,
and perhaps others. The convenience lies in the assignment to each individual
in a class the assumed characteristics of a class, without regard to that
individual's unique productive traits. This is somewhat of a statistical
application. I.e., if I'm hiring a middle manager, and I know females as
a whole have less related experience in this activity than males, one
average I can randomly pick X number of males and have a more qualified
applicant pool than if I consider any females. Is this rational behavior
for a profit maximizer (sans legal constrants)?
Have Working Females Forever Altered Our Work and Home Environment?
There is a rather remarkable trend with respect to the assumption of a
roles of women in paid labor markets. At least during the past century,
women seem to have most benefited from war, which in turn generated labor
shortages, and raised female participation rates. The pattern had
typically been that men marched off, women entered the factories, and when
peace came, men came back and women went back home--until the post-WWII
period, when women by and large stayed in the labor market. Over the past half
century this has built up pressures in the labor market to accommodate the
pressures in the home. Essentially, this has lead to more and more
government legislation to moderate the problems. This has ranged from the
Equal Pay Act in 1963 to the FMLA. In short, an entirely different
dynamic exists in the labor market that requires market and government
solutions to problems that the home environment can no longer resolve.
These "home" problems include the division of household labor,
childcare, eldercare, labor market mobility, employee benefits choices,
and so forth. This greatly complicates analysis by labor economists. The
simple models, such as the work-leisure model, are not very satisfying
when we are forced to consider "family" decision making vs. individual
decision making.
Which Theory Is Right?
One of the lessons I finally absorbed in graduate school was that
most of see the same events, but many of us interpret them differently
because of our value systems, in turn shaped by our own experiences in
life (e.g., discrimination, education, idealism, influences of peers and
mentors). The theory of labor is one of those areas that often inflames
passion, dampens reason, or incites divisiveness and conflict.
An overwhelming and common reality for the human race is that most
of us have to work to sustain ourselves and to better ourselves.
Difficult issues addressed in different theories of labor are derived from
the division of the fruits of this labor. What is measurable, accurate,
or fair? Are there immutable laws of nature, science, or economics that
apply in labor markets and employment relationships?
The range of labor theories is extreme. On one end of the spectrum
is neoclassical economics, essentially presenting technical conclusion
that economic efficiency requires that workers get no more out of the
system than they put into it (i.e., the value of their production). The
assumption in neoclassical theory is of course that of the competitive
model which has no market imperfections.
On the other end of the spectrum is Marxian theory, essentially
arguing that in the final analysis labor produces everything and therefore
should own everything. Capitalists exploit labor by taking the wealth
produced that exceeds the necessities of subsistence. Marxian theory
extends to many other dimensions of society. For example, the assertion
that the educational system is an instrument of capitalists to discipline
labor is a very provocative issue worthy of your thought.
Between these two extremes lie many other views--internal/external
labor markets, dual labor markets, institutionalist thought, bargaining
theory, etc.... At the conclusion of this course the student should be
capable of writing a concise essay on this spectrum of labor theories, and
presenting a dispassionate summary of your own perspective.
Who Are, and Will Be, the Losers and Winners in the Labor Market?
The current wisdom is that the key to success in the labor market
of today and the future is employability. This means forsaking the
mentality that there are "permanent" employer-employee relationships, and
focusing on what is required for mobility from one employment
relationshiip to the next. In this vision of the world labor policies
(such as they are in the U.S.) are put forth that are based on education
that supports this kind of mobility. Thus, the phraseologies of
continuous learning, knowledge workers, intellectual capital, etc....
Strongly connected to this vision are other forces significantly
impacting labor markets, especially in the U.S. These include
globalization via information technology, capital flows, and trade. U.S.
labor policy apparently concedes that low wage jobs requiring little
education will become a diminishing part of the total economic structure
of the U.S. These jobs will be lost to even lower wage developing
countries. Thus, again the focus shifts to high value added, usually high
tech, jobs as the future of the U.S. If this is the reality of the future
then individuals and classes of individuals who are uneducated or poorly
educated can expect their relative economic welfare to continuously
decline. They will be the big losers. The winners will be those who have
a sense of the economic restructuring taking place in the U.S. (e.g.,
continuing shift to a service economy, reliance on information
technologies, and knowledge based production).
What Do Numbers Tell Us?
See chapter on distribution of income.
What Are the New Dimensions of Employment and Unemployment?
Until the 1980's the popular notion of unemployment in the U.S.
was attached to blue collar workers. That has changed. Virtually anyone
at any level can experience the loss of employment. The most commonly
cited reasons for this are advances in information technology, industrial
restructuring of the U.S. economy, trade, and obsolete skills.
Added to the above dynamics is the growth of contingent workers in
the U.S. (part-time, temporary, and contract). An interesting question is
whether, or how much, of this growing segment is voluntary vs.
involuntary. I.e., on one hand we might observe that contingent work
offers opportunities to people who want a different blend of employment
and leisure time. (Can you articulate the reasons?) On the other hand,
the argument can be made that the quantity of preferred, full-time,
well-paid jobs is diminishing, and a large component of the workforce is
simply having to settle for what is left.
Furthermore, advanced thinking on this topic must also incorporate
what is happening with other segments of the labor force. Examples
include the blending of work and education (part-time MBA), hypothesized
increase in teen (high school) work hours and related implications, and
the fuzzy division between retirement and work. That is, some people
retire from one job and are re-employed by another employer. One of the
insights you should have gotten from this course is how the nature of
labor markets in the U.S. has changed in the past decade. A deeper
understanding of what is happening outside the U.S. borders also requires
consideration of labor market restructuring in the context of
international trade, the emerging European Union, international capital
flows, and transnational firm behavior.
What Hath Reengineering Wrought?
The original intent of reengineering was to improve efficiency of
existing production processes, thus freeing up labor to attend to more
value enhancing activities. The actual outcome of the implementation of
the idea has been to generate what firms viewed as surplus labor that
should be eliminated. The emergence of the reengineering mantra roughly
coincided with the emergence of many practical applications of information
technologies. Hence, many intermediate steps in production processes were
rendered obviously redundant. While information technology has put many
people out of work, a fair assessment requires considertion of the jobs
generated--e.g., webmasters. To the extent that the Interent reengineers
the entire economy remains to be seen, but there are clearly niches that
will impact virtually every employment realationship to some degree.
Maybe we need to rename the phenomenon to e-engineering.
Are ER/EE Relations Based on Secrets or Information Sharing?
Information technology (IT) can completely reshape many employment
relationships, but to whose advantage? The obvious impact is the
restructuring of required job skills, corporate communications, and the
will and ability to act upon comparative advantages in information. Much
less obvious is how much more transparent employer/employer relations will
be. For example, how much financial information abou the firm will be
made available to employees? How can they expected to accept a pay system
as fair if they are denied the compensation level data of the firm? One
the other side of the coin, how much personal information will the
employee share with the employer--e.g., gender preference and domestic
partner status, unhealthy behaviors, activities that may reflect on the
employer?
Pay Secrecy
A History of Secrets
Bargaining Theory
What Unions Have Done
Legislated Requirements
Open Book Management
Information Flow Reversal (Benefits--Real time, on-line)
The Net & Related Corporate Policies
Democracy and Information