[Excerpt] What is personnel economics? Despite its name (non-economists may be put off by the use of the word “personnel,” which was left behind by what is now called human resource management about a quarter century ago), personnel economics deals with issues of fundamental importance in the workplace. As the editors explain in the introduction, “The literature is distinguished from other parts of labour economics primarily by its focus on problems that are central to business.” Thus, personnel economics is economics, it is that part of economics that deals with workplace issues, and it is firmly grounded in labor economics. Whether you call it personnel economics, workplace economics, an economic approach to human resource management, or something else, the field is breaking exciting new ground, asking questions that simply were not asked when I and others of my academic generation were learning labor economics

Fields, Gary S

English

DigitalCommons@ILR

Cornell University ILR School 
DigitalCommons@ILR 
Articles and Chapters ILR Collection 
7-2005 
[Review of the book Personnel Economics] 
Gary S. Fields 
Cornell University, gsf2@cornell.edu 
Follow this and additional works at: https://digitalcommons.ilr.cornell.edu/articles 
 Part of the Human Resources Management Commons, Labor Economics Commons, and the Labor 
Relations Commons 
Thank you for downloading an article from DigitalCommons@ILR. 
Support this valuable resource today! 
This Article is brought to you for free and open access by the ILR Collection at DigitalCommons@ILR. It has been 
accepted for inclusion in Articles and Chapters by an authorized administrator of DigitalCommons@ILR. For more 
information, please contact catherwood-dig@cornell.edu. 
If you have a disability and are having trouble accessing information on this website or need materials in an 
alternate format, contact web-accessibility@cornell.edu for assistance. 
[Review of the book Personnel Economics] 
Abstract 
[Excerpt] What is personnel economics? Despite its name (non-economists may be put off by the use of 
the word “personnel,” which was left behind by what is now called human resource management about a 
quarter century ago), personnel economics deals with issues of fundamental importance in the 
workplace. As the editors explain in the introduction, “The literature is distinguished from other parts of 
labour economics primarily by its focus on problems that are central to business.” Thus, personnel 
economics is economics, it is that part of economics that deals with workplace issues, and it is firmly 
grounded in labor economics. Whether you call it personnel economics, workplace economics, an 
economic approach to human resource management, or something else, the field is breaking exciting new 
ground, asking questions that simply were not asked when I and others of my academic generation were 
learning labor economics. 
Keywords 
personnel economics, human resources, management, labor economics 
Disciplines 
Human Resources Management | Labor Economics | Labor Relations 
Comments 
Suggested Citation 
Fields, G. S. (2005). [Review of the book Personnel economics] [Electronic version]. Industrial and Labor 
Relations Review 58(4), 667-668. 
Required Publisher Statement 
© Cornell University. Reprinted with permission. All rights reserved. 
This article is available at DigitalCommons@ILR: https://digitalcommons.ilr.cornell.edu/articles/501 
BOOK REVIEWS 667
Personnel Economics.  Edited by Edward P.
Lazear and Robert McNabb.  Northampton,
Mass.:  Edward Elgar, 2004.  xx, 655 pp.
ISBN 1-84064-892-9, $390.00 (two-volume
set, cloth).
This two-volume collection of papers, total-
ing 43 articles and nearly 1,000 pages, is part of
the International Library of Critical Writings in
Economics series published by Edward Elgar.
The highlights of the new field of personnel
economics are collected here, along with other
highly relevant papers from economic theory
and other branches of economics.
What is personnel economics?  Despite its
name (non-economists may be put off by the
use of the word “personnel,” which was left
behind by what is now called human resource
management about a quarter century ago), per-
sonnel economics deals with issues of funda-
mental importance in the workplace.  As the
editors explain in the introduction, “The litera-
ture is distinguished from other parts of labour
economics primarily by its focus on problems
that are central to business.”  Thus, personnel
economics is economics, it is that part of eco-
nomics that deals with workplace issues, and it is
firmly grounded in labor economics.  Whether
you call it personnel economics, workplace eco-
nomics, an economic approach to human re-
source management, or something else, the
field is breaking exciting new ground, asking
questions that simply were not asked when I and
others of my academic generation were learn-
ing labor economics.
The collection is divided into seven parts:
theoretical foundations (subdivided into basic,
tournaments, and measurement); theoretical
issues; the job; personnel strategy; piece rate
pay; profit sharing, tournament pay structures,
and other incentive schemes; and executive
compensation.  The only new material in these
two volumes is the very interesting introduction
to the collection.  Otherwise, these papers are
reprinted here in facsimile form.  Indeed, most
of these articles are already in my file cabinet.
Newcomers to this field may naively suppose
that personnel economics is so central to man-
agement that its most important papers would
have been published in the top management
journals.  However, this is not at all the case.
Only one of these papers was published in such
a journal, the Journal of Business.  All but one of
the rest appeared in the top economics journals
or in this Review.  (The one remaining paper is
drawn from an edited volume.)  It is indeed
laudable that the economics discipline has been
open to personnel economics and lamentable
that the management field has not been.
If there is one single question that econom-
ics “owns,” it is how to allocate scarce resources
among alternative uses.  We economists start
with a clearly stated purpose, we build parsimo-
nious models, we analyze them formally, and we
test them empirically.  Indeed, I find it difficult
to understand how one can purport to advise
companies on resource allocation issues with-
out adopting an economic framework.
What are the core features of personnel eco-
nomics?  I would list five.
First, personnel economics, like other
branches of economics, values parsimony.  In
Lazear and McNabb’s words, “Economics brings
to these issues an analytical rigour and an ap-
proach that focuses on stripping away their
complexity and identifying underlying general
principles.”
Second, personnel economics follows ortho-
dox microeconomics in assuming purposeful
behavior.  In the case of a business, the pre-
sumed objective is to maximize profits.  For
example, in talking about Henry Ford’s deci-
sion in 1914 to double wages, the editors assert
flatly that “the question is whether this is profit-
able for the firm.”  Those who believe in bal-
anced scorecards or multiple stakeholders will
not find themselves comfortable around per-
sonnel economists.
Third, personnel economists always give equal
weight to benefits and to costs.  You will not find
a personnel economist saying that something
should be done because it produces benefits or
that something should not be done because it is
costly.  The question always is whether or not
the benefits outweigh the costs.
Fourth, how large the benefits and costs are
may be far from obvious.  This is where formal-
ism and rigorous modeling come in.  You can-
not do personnel economics without such for-
malism and rigor any more than you can do
physics without them.
Finally, interactions are expected to matter.
Theoretically, calculus and other tools of multi-
variate optimization lead us to expect that the
optimal amount of one thing ordinarily de-
pends on the optimal amount of another.  The
exceptions are when it is always worthwhile to
do something (such as make clear to employees
what the organization’s bottom line is) or never
worthwhile to do something (such as increase
revenues or reduce costs at the expense of prof-
its).
If the seven sets of issues addressed by this
668 INDUSTRIAL AND LABOR RELATIONS REVIEW
collection of papers interest you and if you find
the personnel economics approach appealing,
or at least worth considering, Personnel Econom-
ics would be a wonderful collection to own.
However, the $390 price tag puts this two-vol-
ume set beyond the reach of many of us, even
those of us with substantial book budgets.  The
cost also makes these volumes an unlikely choice
as required classroom texts.  It would therefore
not be surprising to find that most readers will
be consulting their libraries’ copies.  Those who
do will be well rewarded.
Gary S. Fields
Professor of Labor Economics
School of Industrial and Labor Relations
Cornell University
HRM and Performance:  Achieving Long-Term
Viability.  By Jaap Paauwe.  New York:  Ox-
ford University Press, 2004.  xxi, 252 pp.
ISBN 0-19-927390-1, $119.50 (cloth); 0-19-
927391-X, $49.50 (paper).
This book is written to support Jaap Paauwe’s
long-held belief that much of the research and
writing on the link between human resource
management (HRM) and performance has suf-
fered from too narrow a definition of perfor-
mance and too limited a conceptualization of
HRM.  The book is less a critique of what has
come before than a proposed course correction
for the field.  Drawing heavily on ideas from
strategic management, industrial relations/in-
stitutional theory, and a vast international stream
of research on the various links from HRM to
performance, Paauwe puts forth a new model of
HRM, which he calls “Contextually Based Hu-
man Resource Theory” (CBHRT).  In the early
chapters, he traces the origins of both contem-
porary business strategy and strategic human
resources; later in the book, he offers his own
thoughts and research findings.
The CBHRT model is robust and complex
(hence the need for a book and not an article),
and should prove interesting to academics,
consultants, and practitioners.  It allows the
user, when analyzing specific HR environ-
ments, to recognize both “outside-in” dynam-
ics (the five Porter forces model, for example:
the bargaining power of customers, the bar-
gaining power of suppliers, the threat of new
entrants, the threat of substitute products, and
the intensity of competitive rivalry) and “inside-
out” forces (such as those stressed by the re-
source-based view (RBV), which focuses on firm
members (people) as the source of competitive
advantage).  The HRM portion of the model
encourages multiple measures of performance
and a broad definition of stakeholders.  Paauwe
spends considerable time discussing the unique
relationships among employer groups, works
councils, and trade unions in the European
context.  In the case studies he contrasts the
implementation of High Performance Work
Systems in the United States with that in Eu-
rope, highlighting the different philosophies of
change management.
But by Paauwe’s own admission, parts of the
model do not lend themselves to empirical test-
ing.  Much of the argument is derived from a
series of case studies.  The model does, how-
ever, lead the reader to consider a more inclu-
sive definition of performance (beyond simple
financial results) and a more complex analysis
of HRM (beyond practices) than have been
provided by most of the prior literature.  In this
regard, Paauwe draws a sharp distinction be-
tween the research done from a U.S. perspec-
tive and research done in Europe.  Students
studying global or comparative HR systems will
find his summaries very useful.
The book concisely reviews a variety of re-
search streams, and its topical breakdowns of
the key contributions to date, incorporating
both U.S. and European sources, will be use-
ful to students in particular.  Using CBHRT as
the foundation, Paauwe compares and con-
trasts U.S. HR models with European systems
(Dutch ones especially); these sections of the
book would provide a useful discussion base
for professors teaching comparative HR
courses at the graduate level.  Practitioners
will find Paauwe’s final chapter and case stud-
ies helpful in analyzing their own HR contri-
butions in light of the model.
The book is well organized, thoughtful, and
careful in its analysis of the state of the art.  The
appendices following many chapters contain
summaries of the major findings in SHRM by
topic and author.  While Paauwe does propose
a new model, the book is not a pure sales pitch.
I would recommend it to those who study or
practice HR in the global context, and espe-
cially to those who are interested in the field’s
future direction.
John J. Haggerty
Ph.D. Candidate
School of Industrial and Labor Relations
Cornell University



[Review of the book \u3ci\u3ePersonnel Economics\u3c/i\u3e]

https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1508&amp;context=articles

[Review of the book \u3ci\u3ePersonnel Economics\u3c/i\u3e]

Abstract

Similar works

Full text

Available Versions

DigitalCommons@ILR