Journal Files A.A.S
What is the Place of the Company Picnic in Economics
Leibenstein and Simon present an argument for building loyalty and identification with the firm. Who needs this soft headed stuff? Hasn't principle-agent theory done it all? All the manager needs to do is create incentives for the workers consistent with the objectives of the firm. Then calculation and utility maximization takes care of the rest. P-A theory identifies the problem but provides no answers if the inherent situation is one of high monitoring costs and intrinsic difficulty in relating some overall performance of the firm to individuals. Even if the performance is easily measured, as Simon says, in complex production the manager loses the creativity of the worker that comes from delegation if the job routine is precisely specified and monitored. Incentive design assumes calculation. But, there are situations where the incentives can't be created. Thus if workers are left in their calculation mode, they are going to calculate to slack off.
Learning is an alternative to calculation. Loyalty is about learning, not incentive manipulation; behavior based on reinforcement (in the past) rather than an image of threat of reward or punishment in the future. The firm is the arena where calculation is in part suspended, not just the calculated nexus of contract. This is where the company picnic and the union song come in to build esprit de corps.
But isn't this all fuzzy headed imprecision compared to the deterministic world of maximization? In neo-classical economics, the world in simple. There is a market for all known types of labor which produces a wage for each type. The only problem for a manager is to see where her own firm's marginal productivity of a worker is equal to the wage rate for the type of worker the firm wants. Workers have quality labels attached to them which are perfectly known, and the only problem is to determine how many to hire.
George Young provides a thought provoking observation. There is a restaurant owner who has two waiters who each earn $45,000 per year. Is this dumb or what when they can be hired for near the minimum wage and then fired if they do not measure up as contracted for? The owner thinks she has achieved good value as these two do the work of five unmotivated waiters. Isn't this just the advice of the hard nosed economist? That is, set up the proper incentives--money related to effort. I doubt that the waiters are calculating a leisure-income tradeoff and considering that if they worked half as hard they would get half the salary. I suspect the unusual salary is sending some other kind of signal or reinforcement. It is a sign of respect. I wonder if these waiters opinion on the running of the restaurant is solicited giving them a sense of participation as well as money for the presumed disutility of work. In Marxian terms, I suspect these workers are not alienated from their product. Perhaps we will have to get out of our armchairs and ask them.
An extension agent has noted that large Michigan dairy farmers try to hire the cheapest workers they can. Then they bitch about high turn over, training costs, absenteeism, etc. A few are like the restauranteur and pay higher wages and have good benefit packages. Which manager is the best institutional economist? This should be a researchable topic. If we can find farms with different packages of wages, participation, and human relationships, we can observe differences in output or at least intermediate products like milk production per unit of feed, disease, or whatever.
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