ABSTRACT
Lazear (1999) defines personnel economics as ‘the application of labour economics principles to business issues’ (p. 199). In recent years there has been a growth in the study of microeconomic aspects of the employment relationship between firms and their workers. This can be thought of in terms of principals and agents. We will analyse employment contracts, the provision of incentives for workers, examining fringe benefits, worker effort including shirking, and looking at promotion within the firm. In this chapter we will examine all these aspects of the employment relationship, which are among the insights stemming from the treatment of a firm’s employees as an internal labour market.
