Recruitment & selection: Hiring the right workers

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Recruitment & selection: Recruitment & selection: Hiring the right workers Hiring the right workers 1. The supply side of the labour 1. The supply side of the labour market market 2. Screening: Hiring the right workers 2. Screening: Hiring the right workers 3. The availability of workers 3. The availability of workers 4. Staffing policy in international 4. Staffing policy in international businesses businesses

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Recruitment & selection: Hiring the right workers. 1. The supply side of the labour market 2. Screening: Hiring the right workers 3. The availability of workers 4. Staffing policy in international businesses. Motivation. Recruitment & selection - PowerPoint PPT Presentation

Transcript of Recruitment & selection: Hiring the right workers

Recruitment & selection: Hiring the Recruitment & selection: Hiring the right workersright workers

1. The supply side of the labour market1. The supply side of the labour market

2. Screening: Hiring the right workers2. Screening: Hiring the right workers

3. The availability of workers3. The availability of workers 4. Staffing policy in international businesses4. Staffing policy in international businesses

MotivationMotivation

Recruitment & selectionRecruitment & selection ‘…‘…organisations now appreciate that their survival organisations now appreciate that their survival

depends on the quality of their people..’depends on the quality of their people..’

Search & selection are costly Search & selection are costly Direct costsDirect costs Indirect costsIndirect costs

The supply sideThe supply side

1. Human capital model1. Human capital model– Understanding the educational (& training) Understanding the educational (& training)

investmentinvestment decisions of workers (& firms) decisions of workers (& firms)– Costs & benefits arise over timeCosts & benefits arise over time

– Incremental decision over Incremental decision over timetime – Decision rule: invest if expected discounted Decision rule: invest if expected discounted

future stream of benefits > …costs future stream of benefits > …costs

W

W(T)e f

d c

ba

gW(M)

W(O)Kt

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Age (time)

Fig 1 Investment, income streams & the rate of return

t0t1 t2

Figure 2 Actual rates of returnFigure 2 Actual rates of return

Social rates ofSocial rates of ReturnReturn Private rates Private rates Of returnOf return

CountryCountry SecondarySecondary HigherHigher SecondarySecondary HigherHigher

AustraliaAustralia 16.316.3 8.18.1 21.121.1

CanadaCanada 10.610.6 4.34.3 20.720.7 8.38.3

DenmarkDenmark 7.87.8 10.010.0

FranceFrance 14.814.8 20.020.0

GermanyGermany 6.56.5 10.510.5

Great BritainGreat Britain 9.09.0 7.07.0 11.011.0 23.023.0

ItalyItaly 17.317.3 18.318.3

New ZealandNew Zealand 19.419.4 13.213.2 20.020.0 14.714.7

SpainSpain 8.68.6 12.812.8 10.210.2 15.515.5

USUS 10.010.0 12.012.0

Psacharopoulos (1994)

The measurement & determinants of The measurement & determinants of rates of returnrates of return

(a) Net Present Value (a) Net Present Value (b) Internal Rate of Return(b) Internal Rate of Return (c) Earnings functions(c) Earnings functions

– Problems: data; omitted variable bias, selection Problems: data; omitted variable bias, selection biasbias

- Education & experience always statistically - Education & experience always statistically significantsignificant

....lnln 23210 XXSWW

2. Signalling 2. Signalling

Human capital model:Human capital model:– Education Education causescauses worker productivity to rise worker productivity to rise

– Correlation versus causationCorrelation versus causation

Alternative view – signalling & screeningAlternative view – signalling & screening

ScreeningScreening

Why don’t all workers invest in a high level Why don’t all workers invest in a high level of education?of education?

Evidence: HC versus screening – ability Evidence: HC versus screening – ability biasbias– (a) include IQ and schooling in wage equation(a) include IQ and schooling in wage equation– (b) analysis of identical (monozygotic) twins(b) analysis of identical (monozygotic) twins– (c) instrumental variables(c) instrumental variables– (d) analysis of the self employed(d) analysis of the self employed

3. Screening: Hiring the right workers3. Screening: Hiring the right workers

Empirical support for Human capital modelEmpirical support for Human capital model

Firms: Selecting skill standards Firms: Selecting skill standards – General principle General principle

Hiring standardsHiring standards

Thus:Thus:

Alternatively:Alternatively:

h

g

h

g

W

W

Q

Q

g

g

h

h

Q

W

Q

W

The production technologyThe production technology

1. Production is independent across workers1. Production is independent across workers

2. Workers’ productivity depends on the 2. Workers’ productivity depends on the skills of other workersskills of other workers

100100 110110 120120 130130 140140 150150

OutputOutput

100100 63.1063.10 66.8166.81 70.3970.39 73.8573.85 77.2177.21 80.4780.47

110110 64.9364.93 68.7568.75 72.4372.43 75.9975.99 79.4579.45 82.8182.81

120120 66.6466.64 70.5770.57 74.3574.35 78.0078.00 81.5581.55 85.0085.00

130130 68.2668.26 72.2872.28 76.1576.15 79.9079.90 83.5383.53 87.0687.06

140140 69.8069.80 73.9173.91 77.8777.87 81.7081.70 85.4185.41 89.0289.02

150150 71.2671.26 75.4575.45 79.4979.49 83.4183.41 87.2087.20 90.8890.88

No. of graduates employed

No.

Of

SL

Fig Interdependence in output of two types of workers

The production technologyThe production technology

3. Interdependence between workers & 3. Interdependence between workers & interaction with capitalinteraction with capital

OutputOutput Labour costLabour cost Capital costCapital cost Total costTotal cost Cost/OutputCost/Output

Old machineOld machine

SkilledSkilled 44 £40.00£40.00 £5.00£5.00 £45.00£45.00 £11.25£11.25

ProfessionalProfessional 66 £64£64 £5.00£5.00 £69.00£69.00 £11.50£11.50

New New machinemachine

SkilledSkilled 88 £40.00£40.00 £11.00£11.00 £51.00£51.00 £6.38£6.38

ProfessionalProfessional 1212 £64.00£64.00 £11.00£11.00 £75.00£75.00 £6.25£6.25

Skilled W=£5.00; Professional W=£8.00

Hiring workersHiring workers

How many workers to hire?How many workers to hire?– ‘‘The firm should continue to hire workers so long as the The firm should continue to hire workers so long as the

increment to profit brought about by hiring the worker is increment to profit brought about by hiring the worker is positive.’positive.’

Should firms hire Should firms hire riskyrisky workers? workers?– If they have the same expected valueIf they have the same expected value– If expected value is lessIf expected value is less

2. The availability of labour2. The availability of labour

Search process- See FigureSearch process- See Figure Agents have imperfect informationAgents have imperfect information

quality of jobs (w)quality of jobs (w) locationlocation

Information on a workerInformation on a worker InspectionInspection ExperienceExperience

DecisionsDecisions

(i) Choice of search technology(i) Choice of search technology internal v. external sourcinginternal v. external sourcing

(ii) Choice of search intensity(ii) Choice of search intensity no. of applicants to interviewno. of applicants to interview time - interviewing, testing, etc.time - interviewing, testing, etc.

(iii) Decision rules(iii) Decision rules sequential searchsequential search optimal stopping rule - reservation payoffoptimal stopping rule - reservation payoff

Stop searching & hireStop searching & hire

If If zz z*z* If If zz < < z*z*

Reservation payoff, Reservation payoff, z*z* z* = -z* = -cc + ( + (ff \ \ + + rr)()(((zz*))*))

Reservation payoff, z*Reservation payoff, z*

Z*Z* = = Z*(c, Z*(c, f f \ r, q + p - w)\ r, q + p - w)

Firms are more selective ifFirms are more selective if applicant arrival rate increasesapplicant arrival rate increases costs of search decreasecosts of search decrease quality of match increasesquality of match increases

4. Staffing policy in international 4. Staffing policy in international businessesbusinesses

Types of policyTypes of policy– (a) Ethnocentric policy – key management positions (a) Ethnocentric policy – key management positions

filled by parent-country nationalsfilled by parent-country nationals E.g. Procter & Gamble, Philips, Matsushita, ToyotaE.g. Procter & Gamble, Philips, Matsushita, Toyota

– (b) Polycentric approach(b) Polycentric approach Host-country nationals staff subsidiariesHost-country nationals staff subsidiaries Parent-country nationals – key positions at headquartersParent-country nationals – key positions at headquarters

4. Staffing policy4. Staffing policy

3. Geocentric approach3. Geocentric approach– Recruit the best people for key jobs regardless Recruit the best people for key jobs regardless

of location & nationalityof location & nationality

Staffing policy should be consistent with Staffing policy should be consistent with company strategycompany strategy