4.2 One-Sided Integration: The Case
of Personnel Economics
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For the HRM scholar, economics provides several potentially interesting points of
departure. It has a long-standing theory of how markets allocate labor between
Wrms and how wage levels derive from prices set through product market compe-
tition, on the one hand, and the price at which workers are willing to sell their
labor, given the opportunity cost of working, on the other. It has a theory for how
risk aversion and incentives shape investment in human capital; a theory of the
Wrm, which purports to deWne the conditions under which allocation of labor by
command is more eYcient than its allocation through market exchange; and a
theory of international trade, from which can be derived explanations of the
international division of labor. And it has a tradition of theorizing growth, beginning
with Adam Smith, which has sought to understand how factor inputs (land, labor,
and capital) contribute to a country’s economic growth and productivity.
Compared to the disciplinary weight of economics, with its roots in classical
political economy of the eighteenth and nineteenth centuries, HRM falls into the
category of small fry. It was established in the USA as an academic discipline during
the early 1980 s (see this Handbook, Chapter 2 ) and is still searching for a theoretical
framework (single or multiple) to lend rigor to a fast-growing body of empirical
research. However, while HRM scholars have largely developed their approach
separate to the discipline of economics, since the early 1980 s economists have
turned their eyes to problems addressed within HRM. Our argument here is that
this largely one-sided integration has not been fruitful since (a) many of the
analytical tools from the economists’ bag of tricks are inappropriate for under-
standing the management of labor and (b) with some notable exceptions, the eVort
has been led by mainstream economists, rather than heterodox economists, thus
establishing a too narrow view of how economics might be applied to HRM.
The one-sided integration has been inspired by a perceived need to toughen up
the analytical approach to HRM. The newWeld of ‘personnel economics’ purports
to remove the ‘fuzziness’ from HRM discussions, as one of its founders, Edward
Lazear, claims:
Until recently, there has been no systematic discipline on which to base human resources
decisions. Personnel matters were always regarded as too soft and too human to be dealt
with rigorously.... There is nothing more frustrating to a professional, or a student for that
matter, then hearing a question answered, ‘it all depends,’ or, ‘one cannot generalise about
emotions.’ If one cannot generalise or provide answers that can be proven right or wrong,
then theWeld is vacuous and, unsurprisingly, of little value to practitioners. Fortunately,
things have changed during the past two decades. Personnel is now a science that provides
detailed unambiguous answers to the issues that trouble managers today. (Lazear 1998 : 1 )
72 damian grimshaw and jill rubery