On July 19th-20th, CESifo organized a workshop on "The Changing Organisation Of Labour" within the CESifo Venice Summer Institute. The workshop brought together 14 participants from 6 different countries, CESifo network members as well as invited guests - covering a wide range of aspects in highlighting how the organization of labour changes.
The workshop was scientifically organized by CESifo fellows Kai Konrad and Marcel Thum who selected submitted papers from experts working on issues related to the way labour is organized in today. In his keynote lecture, Bentley MacLeod, one of the world's foremost labour economists and contract theorists and Professor of Economics at the University of Southern California, gave a keynote lecture about the "Employment Contract and the Organization of Labour in Europe". His lecture centered on unemployment as an institution that depends upon individual effort for reallocation to a new job. Individuals respond to unemployment by making adjustments to their lifestyle, further increasing the cost of leaving unemployment. MacLeod proposed to define as the absence of contracts and stressed the importance of labor contracts for understanding unemployment levels.
Florian Englmaier presented joint work with Achim Wambach on "Contracts and Inequity Aversion". He argued that inequity aversion is a special form of other regarding preferences and captures many features of reciprocal behaviour. Introducing inequity aversion yields results that deviate from those known from the standard principal agent literature. If the principal can condition on the effort level, the optimal contract for the case of a risk neutral agent is unique and implies an equitable sharing rule. It also provides a very simple, plausible and experimentally well supported explanation of the predominance of linear wage schemes in real labour markets.
Karl Wärneryd from the Stockholm School of Economics presented a paper on "Distributional Conflict in Organizations" (joint with Roman Inderst and Holger M. Müller). Contrary to what has frequently been argued, they show that multi-divisional organizations may involve lower influence costs than single-tier organizations, even though they offer more scope for organizational conflict and have more executives that can be influenced. These benefits derive from two effects. First, part of the conflict in multi-divisional organizations takes place on the division level, where a small number of agents fight over only a fraction of the overall prize. Second, by grouping agents into common divisions, multidivisional organizations create free-rider problems in rent-seeking.
Workers' choices to sort in large and small firms were analyzed in a paper entitled "Access to Creidt, Risk-Taking and Organizational Change", presented by
Guido Friebel from the Stockholm School of Economics and co-authored by Mariassunta Giannetti. He argued that workers care to realize their ideas as they share the associated benefits with the firm. Small firms being less capitalized are more inclined to realize their workers' risky ideas, but better capitalized firms provide safe jobs and insurance against income risks. When households gain better access to credit, this insurance through the job becomes less desirable. Small firms then gain a competitive edge in attracting creative workers. However, as they take on too much risk, this may reduce average enterprise profitability, increase bankruptcy and spur inefficient organizational changes of large firms.
Venture capitalists not only finance, but also advise and thereby add value to young innovative firms. The prospects of venture capital backed firms thus depend on joint efforts of entrepreneurs and venture capitalists, and are subject to a double moral hazard problem. In financing a portfolio of firms, venture capitalists additionally face a trade-off between the number of companies and the amount of managerial advice allocated to each individual venture. In his paper "Taxation of a Venture Capitalist With a Portfolio of Firms"
Christian Keuschnigg from the University of St.Gallen argued that managerial support and the number of portfolio firms are inefficiently low in private equilibrium. He derived an optimal tax policy that succeeds to move the private equlibrium towards the first best allocation
Dorothea Kübler from Humboldt University Berlin (in joint work with Steffen Huck and Jörgen Weibull) discussed the interplay between "Social norms and economic incentives in firms" and outlined a simple model of team production. For a firm owner, social norms concerning work are important because they can affect profits. For example, norms may influence how much effort workers put into projects where only joint output is observable. Peer pressure penalizes those who deviate from the group norm, and depending on the type of externality and norm, output may be higher or lower without the norm. Empirically studies have shown that group norms exist and have important effects.
Jon Strand from the University of Oslo presented work on "The Decline or Expansion of Unions: A Bargaining Model With Heterogeneous Labor". His model helps to throw light on several important wage and employment patterns across countries, in particular why unions are strong and stable in some countries, and almost nonexistent and vanishing in others.
"Workplaces in the Primary Economy and Wage Pressure in the Secondary Labor Market" was the topic of
Volker Grossmann'stalk (joint work with Josef Falkinger, both from University of Zurich). He emphasized the important of sunk costs involved in the creation of workplaces. The incentive of firms to create workplaces depends on the organizational technology. New methods of organization like customer orientation, international production or decentralized information-processing and decisionmaking requires relatively high abilities of workers. In other words, the costs of organizing jobs for low-skilled workers rises under new organization methods. This has been shown to induce firms in the primary economy to an upgrading of the skill-structure by downsizing their low-skilled work force. The workers who are set free from the primary economy constitute additional supply of low-skilled workers in the secondary labor market. Typically, with flexible wages the secondary economy expands and wages for low-skilled labor go down.
In the next presentation,
Sarbajit Sengupta from the Visva Bhavati University stressed the importance to any business firm of recruiting competent employees. Many firms delegate responsibility of recruitment to personnel departments, 'line managers', senior employees or specialized employment agents. The owner must decide whether to delegate to the senior (supervisory) personnel the task of hiring new employees or take an active role herself - assuming that she is not busy elsewhere. In doing this, she has to trade off the gains from superior competence/information of the supervisor against losses from opportunism on his part.
Human capital theory distinguishes between training in general-usage and firm-specific skills. In his seminal work, Becker (1964) argues that employers will not be willing to invest in general training when labor markets are competitive. However, they are willing to invest in specific training because it cannot be transferred to outside firms.
Christoph Lülfesmann from the University of Bonn (in joint work with Anke Kessler) re-considered this well-known problem of the financing of training. He showed that there exists an incentive complementarity between employer-sponsored general and specific investments: the possibility to provide specific training leads the employer to invest in general human capital. Conversely, the latter reduces the hold-up problem that arises with respect to the provision of firm-specific training.
The coffee breaks and the conference dinner gave plenty of opportunities for participants to exchange ideas and start promising new relationships.
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