Recruitment & selection: Hiring the right workers

1. 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

2. Motivation • Recruitment & selection • ‘…organisations now appreciate that their survival depends on the quality of their people..’ • Search & selection are costly • Direct costs • Indirect costs

3. The supply side • 1. Human capital model • Understanding the educational (& training) investment decisions of workers (& firms) • Costs & benefits arise over time • Incremental decision over time • Decision rule: invest if expected discounted future stream of benefits > …costs

4. Fig 1 Investment, income streams & the rate of return W e f W(T) d c W(M) g W(O) Kt a b t1 t2 t0 Age (time)

5. Figure 2 Actual rates of return Psacharopoulos (1994)

6. The measurement & determinants of rates of return • (a) Net Present Value • (b) Internal Rate of Return • (c) Earnings functions • Problems: data; omitted variable bias, selection bias - Education & experience always statistically significant

7. 2. Signalling • Human capital model: • Education causes worker productivity to rise • Correlation versus causation • Alternative view – signalling & screening

8. Screening • Why don’t all workers invest in a high level of education? • Evidence: HC versus screening – ability bias • (a) include IQ and schooling in wage equation • (b) analysis of identical (monozygotic) twins • (c) instrumental variables • (d) analysis of the self employed

9. 3. Screening: Hiring the right workers • Empirical support for Human capital model • Firms: Selecting skill standards • General principle

10. Hiring standards • Thus: • Alternatively:

11. The production technology • 1. Production is independent across workers • 2. Workers’ productivity depends on the skills of other workers

12. Fig Interdependence in output of two types of workers No. of graduates employed No. Of SL

13. 3. Interdependence between workers & interaction with capital The production technology Skilled W=£5.00; Professional W=£8.00

14. Hiring workers • How many workers to hire? • ‘The firm should continue to hire workers so long as the increment to profit brought about by hiring the worker is positive.’ • Should firms hire risky workers? • If they have the same expected value • If expected value is less

15. 2. The availability of labour • Search process- See Figure • Agents have imperfect information • quality of jobs (w) • location • Information on a worker • Inspection • Experience

16. Decisions • (i) Choice of search technology • internal v. external sourcing • (ii) Choice of search intensity • no. of applicants to interview • time - interviewing, testing, etc. • (iii) Decision rules • sequential search • optimal stopping rule - reservation payoff

17. Stop searching & hire • If zz* • If z < z* • Reservation payoff, z* • z* = -c + (f\  + r)((z*))

18. Reservation payoff, z* • Z* = Z*(c, f \ r, q + p - w) • Firms are more selective if • applicant arrival rate increases • costs of search decrease • quality of match increases

19. 4. Staffing policy in international businesses • Types of policy • (a) Ethnocentric policy – key management positions filled by parent-country nationals • E.g. Procter & Gamble, Philips, Matsushita, Toyota • (b) Polycentric approach • Host-country nationals staff subsidiaries • Parent-country nationals – key positions at headquarters

20. 4. Staffing policy • 3. Geocentric approach • Recruit the best people for key jobs regardless of location & nationality • Staffing policy should be consistent with company strategy