PERSONNELECONOMICS FORMANAGERS Second Edition Edward Lazear & Michael Gibbs

Introduction What is Personnel Economics for Managers About? Organizations and economies are human enterprises. They are the sum result of the motivations, decisions, and actions of many individuals. These individuals ...

Introduction What is Personnel Economics for Managers About? Organizations and economies are human enterprises. They are the sum result of the motivations, decisions, and actions of many individuals. These individuals and their actions are combined to create innovation, higher economic growth, more job opportunities, and better products. The process by which this occurs is one of the miracles of modern economies and modern firms. It is also the topic of this book. One can hardly overestimate the importance of understanding better how firms organize themselves and manage their employees. In large corporations, roughly three-quarters of all costs are human resource related. Similarly, roughly seventy percent of worldwide wealth is in the form of human capital – the skills and knowledge of individuals – rather than in physical or financial capital. Economies grow and change through the creativity and motivation of entrepreneurs and employees. The strategy of many firms today is explicitly human resource driven, emphasizing customization, service, and innovation. Organization and management are also of fundamental importance to you. The topics discussed in this book take on increasing importance as your career progresses. Those at an early stage tend to focus on specialized areas of knowledge. As careers evolve, however, jobs tend to increasingly depend on supervision and management of others. A broader, general manager perspective becomes essential to coordinate the work of many. As the career evolves further, the ability to set up, structure, and manage the entire organization becomes important. A strategic overview of the organization, and how it relates to the firm’s goals and environment, is necessary. In order for a manager to be effective at these various stages, it helps to have a structured, rigorous framework for analyzing the issues you will face. Gut instinct, common sense, and wisdom from years of experience can be extremely valuable. However, combined with a deeper understanding of the issues and tradeoffs behind them, you can become even more effective. The purpose of this book is to give you a rigorous framework for understanding organizational design and the management of your employees. The study of organizations and human resources has not always been rigorous, but that is changing. Economics has proven to be a powerful approach in this area, adding rigor and structure, and clarifying many important issues. This area of economics is often called Personnel Economics, and much of the founding research in this area was done by Edward Lazear. This textbook is based on Lazear’s Personnel Economics for Managers (1997).