ECON5323 Organisational Economics
Choosing Workers Part I
, Recap
• So far, two overarching themes
1. How incentives work in a short-term horizon world
i.e. how to design compensation schemes for workers where the main problem
is that effort is “unpleasant” (moral hazard)
2. How incentives work in a long-term horizon world
• i.e. how to manage careers for workers who find effort unpleasant, but with
whom the relationship lasts over time, and so the range of possible incentive
schemes (as well as what the employer might want the worker to do) is
different
• here we have also introduced the idea of heterogeneity of type into our
models: some workers were “good” and some workers were “bad”
• Now we take a different perspective: rather than taking the worker as
fixed and trying to design incentive schemes for him, how can we choose
the best workers in the first place?
, Choosing workers
• What makes a “good” worker?
• the details depend on the industry and job
• our definition of “good” worker: a worker with higher productivity (i.e. one
that is capable of producing more value/hour)
• The good worker may be “good” in this sense because he is more innately
talented, or better trained, or less “lazy” (i.e. he finds effort less costly)
• In the last section, we saw models in which
1. training can improve worker type
2. worker type is fixed and can only be learned (not improved!) by employers
• We will stick with interpretation # 2 in this section
Choosing Workers Part I
, Recap
• So far, two overarching themes
1. How incentives work in a short-term horizon world
i.e. how to design compensation schemes for workers where the main problem
is that effort is “unpleasant” (moral hazard)
2. How incentives work in a long-term horizon world
• i.e. how to manage careers for workers who find effort unpleasant, but with
whom the relationship lasts over time, and so the range of possible incentive
schemes (as well as what the employer might want the worker to do) is
different
• here we have also introduced the idea of heterogeneity of type into our
models: some workers were “good” and some workers were “bad”
• Now we take a different perspective: rather than taking the worker as
fixed and trying to design incentive schemes for him, how can we choose
the best workers in the first place?
, Choosing workers
• What makes a “good” worker?
• the details depend on the industry and job
• our definition of “good” worker: a worker with higher productivity (i.e. one
that is capable of producing more value/hour)
• The good worker may be “good” in this sense because he is more innately
talented, or better trained, or less “lazy” (i.e. he finds effort less costly)
• In the last section, we saw models in which
1. training can improve worker type
2. worker type is fixed and can only be learned (not improved!) by employers
• We will stick with interpretation # 2 in this section
