A Personnel Economics Approach to Productivity Enhancement

By Edward Lazear
Nordic Economic Policy Review

Personnel economics is a field that grew out of business education and the need to provide aspiring managers with methods for increasing firm productivity. Most of the literature focuses on compensation and management practices that affect productivity with the goal of explaining in a positive sense and guiding in a normative sense the approaches that are used by firms. Examples of the practices and methods include performance pay, based on relative or absolute performance, the use of teams and their formation among workers with complementary skills, and careful screening of workers. This essay discusses some of the empirically most significant productivity-increasing methods, the importance of which is growing over time. The use of these practices is closely aligned with technological change, especially that which has made measurement, implementation and the necessity to use these approaches more critical. As technology progresses, personnel economic approaches to productivity enhancement are likely to become even more important.