Hrm 565 - Employee Development and Retention

HRM 565: Human Resource Management

University of Phoenix

One of the most challenging issues in running a successful human resources operation within the airline industry, or any industry for that matter, is hiring qualified individuals who are capable of contributing to the industry for an extended period of time. Said differently, the main challenges in human resources are recruitment, production and retention. In terms of recruitment, the human resources manager must be able to both go after and hire only the most qualified and capable individuals. In terms of production, the human resources manager must have a plan that successfully trains the hired individual in becoming a productive member of the employment team. Finally, retention requires the human resources manager to create a work environment that encourages the hired, productive employee to continue to be productive within the industry. The answer to succeeding at these three roles is both specialized pre-employment screening.

To understand how pre-employment screening needs to work in today’s information age, one actually must turn towards the findings and work of several notable economists and the concept of asymmetric information and job market signaling as they apply to the human resources world.

Economist George Akerlof, Michael Spence and Joseph Stiglitz all received the Nobel Prize in Economics in 2001 for their joint research in asymmetric information. Asymmetric information is what occurs when the seller knows more about a product than the buyer. Although all three of these economist’s work is technically economic in nature, their ideas and philosophies are applicable to the field of Human Resources. Thus, it is important to read their articles through a human resources outlook.

In The Market for Lemons: Quality Uncertainty and the Market Mechanism, author George Akerlof discusses the situation that occurs when asymmetrical information is in place. The situation that occurs when the seller knows more about the product’s quality prior to the sale is that a traditional market of infinite guarantees is terminated. (Akerlof, 1970). Instead of a traditional free-market system, actual incentives are created to encourage the seller to pass off low-quality goods to the buyer in the guise of being a higher-quality good. The result is the existence of what is commonly referred to as a lemon product. When lemons become the dominate good in the market place, they eventually erode away the market for that used product, such as the market for used cars. (Akerlof, 1970). In an attempt to prevent this situation, many nations, including the United States, have passed what are popularly known as Lemon Laws, or legislation focused on protecting the buyer.

In the article entitled Job Market Signaling, author Michael Spence discuss the theory of job-market signaling. According to this theory, employees signal their job skills to an employer by gaining a certain degree of education. In order to get this degree, and thus the ability to signal, the employee must pay for the education. To reimburse for this “business expense”, the employer pays the educated employee more than an uneducated employee because of the greater skills they have. This works as an unwritten contract: The employer understands the inherent value of having an educated employee (in that it will save them money and create a larger profit in the long run) and thus agree to pay the employee back for their education. (Spence, 1973).

In his Conference Papers, economist Joseph Stiglitz, like Akerlof, discusses the role of information asymmetries. Stiglitz is most noted for his research on screening, or the technique used by one agent to gain otherwise private information from another and thus throwing the balance of equal information off. (Stiglitz, 1985).

Taken together, the works of Akerlof, Spence and Stiglitz have created the field of Information Economics. Information Economics, the area most relevant to human resources, is a significant new direction. Instead of goods and services, information economics places information at the center of understanding business relations.

With the influx of an information economy, human resource managers will have to adjust their practices in to ensure security and compliance. For example, information creates a unique problem in that it is easy to spread yet hard to control. Thus, because anyone can create information, it is hard to trust. In other words, information becomes a lemon, threatening to dissolve the information market (which is, if not at least almost, the entire economic market).

First and foremost is the human resources manager’s role in screening employee applicants for education. As Spence argues, the basis for ensuring