Personnel Economics: The Economist's View of Human Resources

Edward P. Lazear, Kathryn L. Shaw

NBER Working Paper No. 13653
Issued in November 2007
NBER Program(s):   LS   PR

Personnel economics drills deeply into the firm to study human resource management practices like compensation, hiring practices, training, and teamwork. Many questions are asked. Why should pay vary across workers within firms--and how "compressed" should pay be within firms? Should firms pay workers for their performance on the job or for their skills or hours of work? How are pay and promotions structured across jobs to induce optimal effort from employees? Why do firms use teams and how are teams used most effectively? How should all these human resource management practices, from incentive pay to teamwork, be combined within firms? Personnel economics offers new tools and new answers to these questions.

In this paper, we display the tools and principles of personnel economics through a series of models aimed at addressing the questions posed above. We focus on the building blocks that form the foundation of personnel economics: the assumptions that both the worker and the firm are rational maximizing agents; that labor markets and product markets must reach some price-quantity equilibrium; that markets are efficient or that market failures have introduced inefficiencies; and that the use of econometrics and experimental techniques has advanced our ability to identify underlying causal relationships.

download in pdf format
   (142 K)

email paper

This paper is available as PDF (142 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13653

Published: Edward P. Lazear & Kathryn L. Shaw, 2007. "Personnel Economics: The Economist's View of Human Resources," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 91-114, Fall. citation courtesy of

Users who downloaded this paper also downloaded these:
Bartel w4027 Training, Wage Growth and Job Performance: Evidence From a Company Database
Lazear, Shaw, and Stanton w18317 The Value of Bosses
Gibbons w6695 Incentives in Organizations
Shaw The Human Resources Revolution: Is It a Productivity Driver?
Lazear and Rosen w0401 Rank-Order Tournaments as Optimum Labor Contracts
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us