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Personnel economics has been defined as "the application of economic and mathematical approaches and econometric and statistical methods to traditional questions in human resources management". It is an area of applied micro labor economics, but there are a few key distinctions. One distinction, not always clearcut, is that studies in personnel economics deal with the personnel management within firms, and thus internal labor markets, while those in labor economics deal with labor markets as such, whether external or internal. In addition, personnel economics deals with issues related to both managerial-supervisory and non-supervisory workers.
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The subject has been described as significant and different from sociological and psychological approaches to the study of organizational behavior and human resource management in various ways. It analyzes labor use, which accounts for the largest part of production costs for most firms, by formulation of relatively simple but generalizable and testable relationships. It also situates analysis in the context of market equilibrium, rational maximizing behavior, and economic efficiency, which may be used for prescriptive purposes as to improving performance of the firm. For example, an alternate compensation package that provided a risk-free benefit might elicit more work effort, consistent with psychologically-oriented prospect theory. But a personnel-economics analysis in its efficiency aspect would evaluate the package as to cost–benefit analysis, rather than work-effort benefits alone.
Personnel economics has its own Journal of Economic Literature classification code, JEL: M5 but overlaps with such labor economics subcategories as JEL: J2, J3, J4, and J5. Subjects treated (with footnoted examples below) include:
- firm employment decisions and promotions, including hiring, firing, turnover, part-time and temporary workers, and seniority issues related to promotions
- compensation and compensation methods and their effects, including stock options, fringe benefits, incentives, family support programs, and seniority issues related to compensation
- training, especially within the firm
- labor management, including team formation, worker empowerment, job design, tasks and authority, work arrangements, and job satisfaction
- labor contracting devices, including outsourcing, franchising, and other options.