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Integrative Economic Models


The project is based on personnel economics, which is a new and developing field within labour economics. An often-quoted sentence by Edward P. Lazear defines personnel economics as the use of economics to understand the internal workings of the firm. As such it investigates questions that relate internal labour markets, incentives, compensation, promotion, evaluation, recruitment, turnover and other resource practices, Lazear (1999). Hence, personnel economics address aspects of personnel psychology, hum a resource management, labour economics and sociology within the context of modern economics.

Empirical observations show that firms use a rich set of incentives including fixed wages, bonuses, and threat of firing and promise of promotion. Yet, economists do not have a full theoretical understanding of how such a mix of incentives can arise. Second, the contract offered by the firm to the employees will have implications for the employee composition in the firm, employee turnover, productivity etc. Hence, addressing these issues will help us better understand the complex nature of the firm and guide managers and policy makers to design optimal policies that are in accordance with the objectives of the firm.

This project aims at building theoretical models that w ill be tested empirically on European firm data or Danish employer-employee data. The results obtained in the research project have consequences not only for the individual firm and its employees but also at the national and European levels as it provides guidance on how to reduce unemployment, create innovations and improve the conditions for disadvantaged individuals within the European Union. In addition, the project will address gender issues within personnel economics whenever relevant. The research project will be conducted at Stanford Graduate School of Business under supervision of Professor Edward Paul Lazear and Professor Kathryn Shaw. The return host is the EQUIS rewarded Aarhus School of Business.

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Prismet, Silkeborgvej 2

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