Personnel economics

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In the 1970s, there was a flurry of research that sought to answer the questions of how prices of goods and services traded within a firm are determined. Many questions about how wages are determined inside a firm, and how the wages of the workers relate to one another within a firm, was raised as a result. Personnel economics was therefore developed to answer some of the questions raised. It is now a field where people examine the pay structure and promotions within hierarchical organizations.

The major theories were developed in the late 1970s and 1980s by Edward Lazear, Sherwin Rosen, Bengt Holmstrom, to name but a few.

In the late 1980s and 1990s, this field had forged some very close links with experimental economics. The researchers had to generate their own data with experiments because they had found it very hard to find data collected in the real world to test the theories in this field (e.g. tournament theory). Other empirical studies conducted then utilised data from sports tournaments (e.g. golf tournaments) and company records on their suppliers' performances (e.g. raising broiler chickens).

Starting from the mid-1990s, there was a surge of empirical research in this field, caused by the wider availability of personnel records of large companies being made available to researchers.

Personnel economics has its own classification code, JEL: M5, within the Journal of Economic Literature classification system of the American Economic Association. While there is a good deal of overlap between personnel economics and traditional labor economics, there are a few key distinctions: studies in personnel economics deal with the personnel management of firms while those in labor economics also emphasize labor markets. In addition, personnel economics deals with issues related to both managerial-supervisory and non-supervisory workers.^[1] In this way, personnel economics also deals with some of the same issues as human resource management.