cost per unit output compared to theWrm’s cost per unit output, adjusting for the
opportunity cost of altering workforce size ( 1998 : 346 – 50 ). Coase ( 1937 ) argued,
however, that the costs of using the market price mechanism to organize produc-
tion often remain hidden. Such costs include those ofWnding out market infor-
mation (e.g. the wage and output data pulled from the air in examples provided in
personnel economics textbooks) and those of establishing repeated market
exchanges (e.g. the costs of managing, negotiating, and respecifying contracts).
Again, qualitative evidence from HRM studies reveals the range of costs associated
with outsourcing, but some, such as those related to worker morale and commit-
ment (e.g. George 2003 ; Logan et al. 2004 ), do not lend themselves to inclusion in
neat models. A deeper problem is that the practice of comparing internal and
externalWrm data on cost per unit output presumes it is possible and desirable to
assessWrm performance using narrow market-based yardsticks. Studies rooted in a
‘dynamic capabilities’ approach (Teece 2002 ) argue instead that the use of market
benchmarks and incentives in determining the strategy of theWrm may have the
unintended consequence of reducing the value attached to thoseWrm-speciWc
activities which cannot be organized using markets, especially learning and
cooperative activity. As Teece argues, ‘the properties of [Wrm] organization cannot
be replicated by a portfolio of business units amalgamated just through formal
contracts, as many distinct elements of internal organization simply cannot be
replicated in the market’ ( 2002 : 158 ).
4.3 Towards More Integrated
Approaches
.........................................................................................................................................................................................
While the integration of economics reasoning into human resource management
or vice versa has been limited, we canWnd several examples of serious eVorts to
integrate the two approaches from both directions. Rather than attempt a com-
prehensive review, we pick out two sets of examples:Wrst, explanations of the
choice of HR practices; and second, internal labor market theory.
- 1 Selection of HR Practices
The selection of HR practices presupposes a prior choice between market and
hierarchy, or make and buy. Kaufman ( 2004 ) argues for a more rigorous eco-
nomic analysis both of the make and buy decision and of the precise choice of HR
policies, on the grounds that HR policies carry costs that must be covered by
76 damian grimshaw and jill rubery