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Chapter 17: Problem 1

What is personnel economics?

Short Answer

Expert verified
Personnel economics is a subfield of economics that applies economic concepts and theories to understand the relationship between employers and employees, and how this affects overall job design, employee productivity and efficiency. It's applied by firms to formulate incentive plans, wage policies, training programs, and other decisions to maximize productivity.

Step by step solution

01

Understanding the term

Personnel economics is a subfield of economics that applies economic theories, concepts and methodologies to understand the interaction between employers and employees, job design, and how it affects employees' productivity and efficiency.
02

Explaining the relevance of the term

Personnel economics uses the idea of contract theory to shape reward systems, and uses insights from incentives to inform how to design effective contracts. It also studies the implications of asymmetric information, potential adverse selection and moral hazard problems, which are commonly found in the employment relationship.
03

Discussing the application

In its practical application, companies use personnel economics to design incentive plans, to decide whether to use bonuses or promotions as rewards, to design optimal wage policies, and to establish training programs. In general it helps companies to make decisions or policies that maximize employee productivity and efficiency, contributing to the company's success.

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