Quiz 1_MGMT 104
Why work?
*Adam Smith*: - people work out of *self-interest* - "it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner" *Karl Marx*: - work is a form of self-expression - work is an end in itself, not just a means to an end - content of work (not just the outcome) is important *Max Weber*: - *culture*, a system shared by a group of people, produces the motivation for work - Protestant Reformation led to the spread of capitalism - John Calvin spoke of the spiritual virtues obtained through and demonstrated by work Other reasons: - basic needs - safety and security - social status, esteem, admiration - identity
What do firms with strong ILMs do to respond to recessions or increases in labor supply?
*Don't* decrease wages *Don't* decrease employment levels (i.e. lay people off) *Do* alter their hiring standards - job vs wage competition *Do* change work hours for existing workers - more common outside the US *Do* use non-standard workers to supplement the labor force - e.g. temps, contract labor
Exit vs Voice
*Exit*: generally the province of economists - vote with your $$$ as consumers and your feet as employees - assumes the existence of vibrant, competitive markets *Voice*: emphasized by political scientists and sociologists - vote with your vote and your arguments to managers (vertical) but also politicians, regulators, peers (horizontal) and society - voice can be risky; Anderson argues that voice should be protected and the right to voice guaranteed for workers - voice is more powerful when the threat of exit is credible, but this threat may also reduce workers' incentives to exercise voice
How do firms with internal labor markets differ from those without ILMs?
*Firms shaped by external labor markets*: - pricing, allocation and training of labor are determined directly by competitive forces - jobs are filled by workers outside the firm - "open" employment relationship (spot market, no long term contracts) *Firms with strong internal labor markets*: - pricing, allocation, and training of labor determined by administrative rules - jobs are filled by promotion and transfer and therefore are shielded from the direct influences of competitive forces - "closed" employment relationship (implicit long term commitment)
Describe the two main approaches to setting pay
*Job-based*: internal equity a main goal - identify compensable factors to group jobs of similar value - changing the salary of one job often necessitates altering the pay in others *Market-based*: external equity a main goal - benchmark pay to what others are paying for similar work (by geography, occupation, industry) - HR consulting firms often help with the collection and dissemination of this information Note: many employers use a combination of these approaches
What are firms' legal obligations to contractors?
*Mandatory benefits*: - minimum wage / overtime - social security and workers' comp - unemployment insurance -- for most states, max period for receiving benefits is 26 weeks -- up to 50% of salary (avg is 36%) - health insurance (since 2015) - unpaid leave (since 1993) -- most employers must provide p to 12 weeks unpaid leave in a 12 mo period for birth / adoption of a child; care for a sick spouse, child, etc. *Voluntary benefits* - retirement -- defined benefit (traditional pension) or defined contribution (401K) - life and disability insurance - paid time off (for sick leave, maternity leave, severance pay, etc.) Note: US relies heavily on FIMRS to provide for many basic welfare provisions
How does contracting impact workers?
*Negatively*: contracting destroys institutions - pushing people into the secondary labor market - undermines job security and stability that is typically tied to permanent employment - undermines unions and the protections they provide note: much of this research is based on low-skill workers *Positively*: free agents to choose their rewards - demise of postwar employment compact gives workers freedom - no bosses, no orders, no bowing to authority note: much of this research is based on IT workers
Is there more than one labor market?
*Neoclassical models*: envision a single labor market; wage differences are explained mostly on the supply side, by differences in human capital (skill levels) and workers' preferences (tastes for difficult or dangerous jobs) *Dual labor market theory*: sees differences on the demand side, not explained by worker skills and taste - firms matter and institutions often play a critical role
Why study IR / HRM?
*Normative Implications*: Is the system fair? - opportunity / access - excessive inequality - responsibility *Positive Implications*: Is the system efficient? - profit - competitive advantage
Netflix and Apple Employment Strategies
*The 'Apple Deal'* (1990s) "We're not interested in employing you for a lifetime, and that's not the way we are thinking about this. It's a good opportunity for both of us that is probably finite" *Netflix* - we are a team, not a family - we're like a pro sports team, not a kid's recreational team - Netflix leaders hire, develop, and cut smartly, so we have stars in every position
What shapes an organization's workforce?
*The Attraction / Selection / Attrition Model* Types of employees <--- Attraction - Selection - Attrition ---> behavior and culture of the organization 1. You have limited control over the composition of your employees 2. Hiring decisions are never about one person 3. Hiring decisions shape culture and behavior 4. Organizations become homogenous over time
Describe the "New Deal at Work"
*The old 'New Deal' (1940s - 1970s)* - job security for employees / retention for firms - loyalty and commitment to firms / motivation from employees - skills development (including firm-specific skills) was a sound investment for firms and workers New Deal System for Blue Collar Workers: - NRLA (1935): established protections for organized labor -- increased pay, security, and improved conditions for unionized workers - encouraged even non-unions firms to upgrade conditions for workers -- to compete for good workers -- to forestall unionization in their own firms - FLSA (1938): minimum wage, overtime pay above 40 hours New Deal System for White Collar Workers - stable managerial employment - internal labor markets -- training and possible advancement in firms --> worker commitment from professional workers 1970s: decline of unions and stable employment for blue collar workers 1980s: decline of job security for white collar workers as the focus of firms shifts to emphasize shareholder value - corporations reorganize to capture investor premiums on firms that generate the most profits for the least assets - example: GE restructuring (mid 1980s) 1990s - 2000s: the New Deal at Work *Fissured Workplace* - technology, transportation, globalization, specialization, and outsourcing changed the way businesses view their labor force - pressure from stockholders to shed non-core competencies - sub-contracting, temp agencies, labor brokers, franchising, licensing, and 3rd party management all lead to fissuring / changing firm boundaries - all lead to tenuous employment relationships, shift of compliance on labor standards away from lead firms, and a more vulnerable workforce
Why are unstructured interviews poor predictors of performance?
*What are unstructured interviews?* - different questions for different candidates - free ranging conversations - no standard scores - no upfront work for the interviewer - fun? *Why they don't work (very well)*: - confirmation bias: seeing what we expect to see - similarity bias: trying to hire ourselves - attraction bias
Disciplines Studying Labor Markets (Streeck)
*type of social relationship vs level of action* - functionally diffuse (non-contractual) / individual action --> economic sociology (fairness) - functionally diffuse / collective action --> political science / sociology (power, control) - functionally specific (contractual) / individual action --> labor economics (efficiency) - functionally specific / collective action --> industrial relations (workplace stability, labor peace)
What are some of the explanations as to why labor force participation rate has declined so considerably?
- about 2/3 of the decline can be attributed to aging workforce / retirement - demand: decline in demand for low-skill workers - supply: unemployment / disability insurance
Why are phones being assembled in China's Pearl River Delta?
- codification allows separation of design from manufacturing - manufacturing can be separated into simple steps - lowered trade barriers ---> labor arbitrage
Who is left out of unemployment statistics?
- discouraged workers - underemployed workers
Describe defining requirements for the job
- identify characteristics of the top performers in the job - create performance metrics for first year in the job -- 3-8 specific goals with outcomes expected - consider skills that the team lacks - interview key stakeholders - identify and define non-negotiable cultural components
What were some of the unintended consequences of contracting that Hyundai experienced?
- increased tension due to the "necessary cooperation between but conflicting interests of regular and contract workers as well as other workplace actors" - more contract workers led to "greater union involvement, since another one of its consequences was that it required greater labor - management bargaining" Note: WeWork does not contract out its baristas / on-site staff in order to maintain control over its brand.
Primary Labor Market
- relatively high wages, fringe benefits, agreeable working conditions, and employment security - job ladder: possibilities for raises and promotions - jobs often require higher levels of skills and education, and can include significant amounts of on the job training - workers more likely to be protected by internal labor markets
Forces that impede labor market adjustment
- search costs: hiring for firms and switching jobs for workers are both costly - training / specific skills - wage stickiness: firing workers, cutting wages can be perceived as unfair and lead to morale and productivity declines - regulations (like minimum wages, employment protections): tend to raise wages above market levels, leading to unemployment - customs and institutions (including labor unions) also constrain choices
Why do these pay myths persist?
- semantic confusion with labor rates and labor costs is pervasive - pay rates are easy to change, but it's just one set of management practices that influence motivation and performance - Neo-classical economic assumptions -- that workers prefer not to work -- that effort (primarily) comes in exchange for financial return (counter: work behavior is social, not just self-interested) -- that guile and opportunism abound (though research shows little evidence of free rider problems)
What are some of the competitive advantages of contract manufacturing?
- speed (response to volatile demand) - consistent quality on commodity products - low cost due to -- scale -- logistics and sourcing (minimize waste) -- *process innovation*
Demand for Labor
- the firm maximizes profits by choosing how many workers to hire (labor) and how much plant and equipment to invest in (capital) - profit maximization implies cost minimization - keeping the output constant, the firm chooses a least cost combination of capital and labor
Secondary Labor Market
- wages are low and benefits minimal or non-existent - less desirable work conditions - jobs require low skill levels - social prestige is low - often part-time work - lay-offs and periods of unemployment more common - turnover on these jobs is often high Note: standard economic models are more useful in studying this market
Basic assumptions of the competitive labor market model
- wages determined by supply and demand / workers' marginal products -- in the simplest models, all workers are homogenous - there is no cost to determine current market wages - firms are homogenous, so all jobs are identical and firms "bundle skills" similarly - all labor hired in "spot" market; no long term contracts - all compensation is monetary
Describe job evaluation systems when attaching pay to people
1. Benchmark pay according to what others are paying for similar work by geography, occupation, industry, etc. - HR consulting firms help with collection and dissemination of this information Goal: achieve some level of external equity Emphasizing performance-based pay: - for ~35% of jobs, "performance pay" plays a part in remuneration (bonuses, commissions, tips) -- more common in higher-paid jobs but apparent in both high and low skilled jobs
If good jobs lead to better performance, then why are there so many bad jobs?
1. Economic optimization - high quality jobs require upfront investment in skills and relationships; short production life cycles make this hard - or maybe managers are just stuck in a Taylorist rut? 2. Economic assumptions about human behavior - motivation driven by inducements / incentives 3. Attitudes and preference for authority - work redesign involves redistribution of power and challenges implicit assumptions about control and leadership 4. Policy - in Germany, retail jobs exist, but they are broader and more interesting than those in the US as a result of state-supported vocational training that produces highly skilled workers
Main practices associated with ILMs
1. Preference for internal promotion over outside hires - seniority matters 2. Wage rules: wages attached to jobs, not workers - internal equity is an overriding goal 3. On-the-job training - informal and formal OJT - workers may need insurance of job stability / upward mobility before developing firm specific skills
Why have internal labor markets?
1. Reducing turnover costs, leading to increased efficiency 2. Skill specificity - need for these skills increases recruitment and training costs and these skills may not be easily transferable 3. Institutional pressure and support - 1930s: ILMs spread with rise in influence of industrial unions; New Deal created need for HR department - WWII: gov't tacitly supports ILMs as part of wartime planning - 1960s: firm responses to EEO legislation; ILMs were more effective response to curbing discrimination
6 Myths About Pay (Pfeffer)
1. labor rates and labor costs are the same thing - productivity matters too 2. you can lower labor costs by cutting labor rates - productivity matters too; can work counter to lower labor costs 3. labor costs constitute a significant portion of total costs - depends on the industry and nature of the work 4. low labor costs are a potent and sustainable competitive weapon - difficult to sustain, easy strategy to imitate 5. individual incentives raise performance - can undermine teamwork, induce short-term mindset 6. people work for money - yes but not ONLY for money
What are the main characteristics of structured interviews?
1. questions clearly linked to key skills and abilities needed for jobs 2. same questions asked of each candidate 3. scoring anchors to systematically evaluate answers 4. respondents scored on each attribute 5. interviewers trained on the question 6. candidates meet multiple, diverse, trained interviewers
Describe the trends in annual hours worked per person in the last 50+ years.
1950: People in France and Germany worked nearly twice as many hours annually as American people. 1950 - 2013: annual hours worked per person 15 to 64 has been steadily declining in France and Germany but has been slightly rising in the US. 2013: annual hours worked in the US is slightly higher than it was in 1950 but nearly half as high in Germany and France. Note: Germany < France < US << Japan
Describe the "make" or "buy" decision
A continuum: *Make* - internal employment: stable (e.g. Kodak) - internal employment: less stable (Netflix) - long term contract (cable workers) - repeated contract (Uber) - spot transaction (Home Depot) *Buy*
In theory, how does the rise of contracting impact firm strategy?
Benefits: - reduce costs - find special skills - gain flexibility Risks: - no security for workers --> no commitment from them either - lack of control over contractors / no guarantee of efficiency or quality
Describe the new ABC Test in California?
California employers now must be able to answer yes to all three parts of the ABC test if they want to classify workers as independent contractors - the worker is free from the control and direction of the hirer in relation to the performance of the work, both under the contract and in fact; - the worker performs work that is outside the usual course of the hirer's business; AND - the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hirer If the employer can't answer yes to all three parts of the ABC test, the worker must be classified as W-2 employee. HUGE implications for Uber, Lyft, etc.
Career impacts of high-skilled contracting (MBAs)
Contracting seems to allow for better work-life balance - escape office politics and creeping work demands But this comes at a cost... - results in pay penalties and lower levels of managerial responsibility in later regular employment - lower career satisfaction
What is the basic structure of an effective hiring process?
Define requirements ---> establish valid selection process ---> evaluate results
Describe establishing a valid selection process
Don't Trust Your Gut (Google Article) Validity is the relationship between the test and job performance Problems with intuition: - attractiveness bias: attractive people are perceived to be more sociable, mentally healthy, intelligent. etc. - halo effect: good candidates are seen as good on all dimensions on which they are evaluated - What you see is all there is (wysiati): tendency to draw very strong conclusions on the basis of very weak data; reluctance to attend to disconfirming data Some selection processes frequently used by firms (correlation with subsequent job performance): 1. job knowledge tests (.48) 2. cognitive ability tests (.51) 3. personality tests for conscientiousness (.31) 4. reference checks (.26) 5. structured interviews (.51) 6. unstructured interviews (.31) 7. work samples (.54) 8. integrity tests (.41)
What share of the workforce participates in the gig economy?
Estimates vary - US Bureau of Labor Statistics: 10% - McKinsey Global Institute: 15% - Freelancers Union: 35%
Do firms spend more on hiring or training expenses?
Firms spend more on training (18.3% of HR expenses) than hiring (13.6%).
Describe Herzberg's Job Enrichment Model
Focus job design on growth and motivation Study of vertical job loading shows that over the 6 month study period, after a short decline, achievement / performance increased as workers' control over their work increased. - the very opposite of Taylorist jobs
What are the main challenges of hiring?
Goal: find the best match between the characteristics of available applicants and the demands of the job, but: - the demands of the job may be poorly understood - the real characteristics of applicants are hard to assess
Goal-Setting Theory of Motivation
Goals focus attention, generate energy, and foster persistence. Employees are motivated by goals if: - the goals are specific, measurable, and challenging AND - workers understand and accept the goal *Assumptions*: - properties of the task itself (vs basic principles) drive motivation - concrete goals focus effort and attention *Pros*: - very applicable to business settings - managers can impact goals and goal setting *Cons*: - challenging is good; impossible is demotivating - motivation absent once task is achieved - goals can conflict ---> workers tend to do the easiest Example: study of 74 truck drivers resulted in a 15% in the # of trips per day and firm savings of $2.7MM in < 4 months for the group of drivers that received difficult, specific goals to increase # of daily trips to the mill
Supply of Labor
Graphically represented as wage rate ($) vs hours of work, backward-bending curve instead of a linear line Before the inflection point: substitution effect dominates - workers prefer work to leisure as the wage rate increases After the inflection point: income effect dominates - workers prefer leisure to work as the wage rate increases
Describe how to evaluate hiring results
How well did selection techniques predict future performance? Which measures were most predictive? Are some interviewers better at predicting performance than others?
Does pay for performance motivate people to work harder? When?
Individual performance pay works best when: 1. workers' output is easily measured in quantity and quality 2. workers are focused on the measurable task - multitasking creates problems 3. workers' output does not depend much on other external factors These conditions are very hard to meet. Example: Wells Fargo scandal - reminder that paying for performance needs to be carefully monitored to ensure that the compensation program isn't inducing employees to break the law and / or run up compensated metrics without generating profits Example: Safelite Auto Repairs - met all of these conditions Potential problems with performance-based pay: 1. "long-link" / "line-of-sight" problems - how much and how quickly does any one worker's personal productivity affect the outcome in question? 2. "rewarding A while hoping for B" problems - people perform to incentive in place --> potential for gaming the system - paying for individual performance could undermine teamwork and training
What does recent research say about internal hiring?
Internal promotion is more efficient than outside hiring. Compared the effects of outside hiring vs promotion within an investment bank, looking at workers across all jobs. Findings: - new hires performed *worse* than internally promoted workers for the first 3 years - new hires were paid 18% more than promoted workers - external hires may be better when firm needs skills / ideas not in the current workforce
Describe job evaluation systems when attaching pay to jobs
Job evaluation systems: determine worth of one job relative to another job in the firm 1. Identify compensable factors (the criteria for comparison) - jobs are typically categorized into groups with similar "value" - wages between workers in the same category can vary (years of experience, performance, etc.) 2. Set pay so that jobs in the same category get paid similarly and that as you move up in job difficulty, pay increases by a set percentage - changing the salary of one job often requires altering the pay in others Goal: achieve some level of internal equity - common approach used in firms with internal labor markets
Expectancy Theory of Motivation
Motivation is the product of three factors: 1. Expectancy: if I put forth effort, will I succeed? 2. Instrumentality: if I perform, what outcomes will occur? 3. Valence: how much do I value those outcomes? *Assumptions*: - people are able to make calculations of ability and estimate potential outcomes *Pros*: - focuses on perceptions - logical: fits into "rationality" arguments common in economics *Cons*: - less certain if people actually make these calculations, and if so, how Example: cyclists asked to race against avatars of what they thought were their own best effort outpaced their previous personal best times by over 2%
Describe Dan Ariely's theory of motivation
People are motivated by "simple" things like: - feeling a sense of purpose and that work itself has an impact - feeling a sense of contribution and accomplishment -- Ikea Effect: jobs that are more difficult are more meaningful Reminds us of Karl Marx's theory of work - work is a form of self-expression - work is an end in itself, not just a means to an end - content of work (not just the outcome) is important
Why do workers contract?
Push factors: - little job experience - lost / unable to obtain permanent employment Pull factors: - maintain / enhance particular skills - higher pay - more flexibility - avoid office politics, bureaucracy Evidence from Wharton MBAs: - high skilled contractors - highest % of respondents say they contract to gain more control over their work
Describe Google's data-based selection process and evaluation of results
Systematic approach: - establishing criteria to assess quality - testing assumptions with data - dropping / amending what did not work Examples: - brainteasers are a complete waste of time - GPAs are worthless as a criteria for hiring Evaluation of results: - evaluate data and interviewers' performance Why don't more firms do this kind of analysis? - cost (time, expertise, etc.) - beliefs / traditions: desire for "fit" often trumps a more systematic approach
Job Enrichment / Job Characteristics Theory
Tasks contained in a job impact workers' motivation and satisfaction *Skill Variety*: I get to use a lot different skills in my job *Task Identity*: I complete an entire task from start to finish *Task Significance*: my work has a substantial impact on others *Feedback*: I can directly experience whether my work is successful *Autonomy*: I decide myself how to do my work experienced meaningfulness of work + knowledge of actual results of work + experienced responsibility for outcomes of work = internal work motivation internal work motivation leads to: - quality work - satisfaction with work - low absenteeism and turnover
Describe a Taylorist management system
Taylorism: engineering-based job design - use of time-motion studies - "one best way" vs the "human element" - goal: bring science to production; increase efficiency Key scientific management practices: - *simplification of tasks*: division of labor -- ongoing evaluation of work processes -- narrow tasks, little job rotation -- shift of responsibility for work organization from worker to manager (from contract of work to contract of employment) - use of *performance-based pay* and *extensive monitoring* -- aim: keep workers following proscribed procedures Taylor's assumptions: - workers are (a) dumb and (b) lazy - workers respond only to financial incentives ---> lead to little consideration to how job design affects worker attitudes or performance
How does the rise in contracting impact low skilled contractors?
The rise in contracting largely shifts the risks of fluctuating demand from firms onto workers.
How does hiring well lead to better performance?
Worker performance = ability x motivation Ability: smart recruiting leads to high ability workers and new skills Motivation: smart recruiting leads to highly motivated workers who are a good match to the firm and job Neither ability nor motivation are fixed, both can improve or decline after an employee is hired, BUT - skill building is difficult and expensive - motivating workers who are a bad fit for a job is hard
Equity Theory of Motivation
Workers expect a fair return for what they contribute to their jobs. - determine what is fair by comparing their inputs and outcomes to their coworkers - employees who perceive unfair treatment will seek to reduce the inequity *Assumptions*: - people are motivated by the relative value of external rewards - fairness and justice are key to motivation *Pros*: - recognizes the importance of perception of rewards, not just quantitative measures - recognizes the importance of context: it's social *Cons*: - each individual can have her own referent - harder for management to deal with (i.e. we can't always impact perceptions) Inequitable rewards ---> dissatisfaction, reduced output, departure from organization Equitable rewards ---> continuation at the current level of output More than equitable rewards ---> harder work Introduces two more challenges with performance-based pay: 1. objective standards of performance are not always present ---> allows bias to factor into measures of performance 2. rewarding differently for the "same" work can create envy / perceptions of inequity
Are firms leaving ILM practices behind?
Yes (rise of outsourcing, contracting, temp labor, etc.) but to varying degrees - persistent ILM differences even in face of downsizing and increased competition - new, different rules for ILMs: -- less OJT in many firms / sectors -- less job security, especially for managers, and declining union influence -- more external hiring BUT ILMs continue to influence how firms are organized - esp. regarding the allocation of jobs, training, and compensation In many other countries, ILMs show continued strength - Australia: no evidence of ILM decline - Korea: "ILM practices continue to have merit in promoting consummate cooperation and delaying perfunctory cooperation."
Do contractors give managers flexibility?
Yes, but not always as much as expected. Why? IT manager survey shows that employee headcount and consultant headcount declined at the same rate. Why hold on to so many contractors during a downturn? - these contractors offered special / specific skills that the firm needed Takeaway: if you rely on firm-specific skills, contractors may give you less flexibility than you think.
Reservation Wage
the wage below which the worker would refuse or quit the job in question; depends on factors such as - benefits / type of work - danger on the job - family status Note: some evidence shows that women have a lower reservation wage than man
