Essays on Gender Differences in Training, Incentives and Creativity, Survey Response, and Competitive Balance and Sorting in Football Inaugural-Dissertation zur Erlangung der Doktorwürde der Wirtschafts- und Verhaltenswissenschaftlichen Fakultät der Albert-Ludwigs-Universität Freiburg i. Br. vorgelegt von Arne Jonas Warnke geboren in Kiel WS 2016/17 Dekan: Prof. Dr. Alexander Renkl Wirtschafts- und Verhaltenswissenschaftliche Fakultät Erstgutachter: Prof. Bernd Fitzenberger, Ph.D. Zweitgutachter: Prof. Dr. Stephan Lengsfeld Promotionsbeschluss: 10. Mai 2017 Acknowledgements I am indebted to many people who have helped and encouraged me in completion of this dis- sertation. First of all, I want to thank Bernd Fitzenberger for his supervision and his continuous support during the last years. I greatly benefited from his constant advice and his helpful ideas. His ex- cellent lectures about labor economics and micro-econometrics gave me a profound foundation for this dissertation. I also want to thank my second supervisor Stephan Lengsfeld and Lars Feld as a third dissertation examiner. In the course of this dissertation, I was very fortunate to work together with Christiane Bradler, Susanne Neckermann, Roman Sittl and, in particular, Susanne Steffes. These great collabora- tions were always very professional and instructive, yet at the same time enjoyable and pleasant. I also thank Francesco Berlingieri, Martin Kiefel, François Laisney and Thomas Zwick for many discussions about (personnel) economics, econometrics and statistics. I owe thanks to many colleagues at the Centre for European Economic Research (ZEW) for their support and encouragement. Finally, my biggest thanks go to my family. Rebecca always supported me during and well beyond the preparation of this PhD thesis. My parents and my family have imparted to me the desire for curiosity and learning. Contents 1 General Introduction 3 1.1 Summaries of the Chapters . .6 2 Incentivizing Creativity 12 2.1 Introduction . 14 2.2 The Experiment . 18 2.3 Main Results . 25 2.4 Supplementary Investigations . 30 2.5 Conclusion . 36 2.6 Appendix . 39 3 Competitive Balance and Assortative Matching 58 3.1 Introduction and Literature . 60 3.2 Background . 61 3.3 Data and Empirical Framework . 66 3.4 Empirical Results . 71 3.5 Conclusion . 84 3.6 Appendix . 87 4 New Evidence on Firm-Based Training 98 4.1 Introduction . 100 4.2 Research Questions . 103 4.3 Data . 104 4.4 Methods . 108 4.5 Results . 112 4.6 Conclusions . 121 4.7 Appendix . 124 5 Gender Differences in Wages and Training 137 1 5.1 Introduction . 139 5.2 Literature . 141 5.3 Data . 145 5.4 Results for Training . 150 5.5 Results for Wages . 161 5.6 Conclusions . 165 5.7 Appendix . 168 6 Linkage Consent Bias 180 6.1 Introduction . 182 6.2 Literature . 184 6.3 Research Questions . 186 6.4 Data . 189 6.5 Predictors of Linkage Consent and Establishment Heterogeneity . 191 6.6 Bias in Economic Models . 199 6.7 Conclusions . 204 6.8 Appendix . 207 5 References 221 Bibliography of the Chapters 240 2 1. GENERAL INTRODUCTION 3 1 General Introduction Interactions between firms and workers play a central role in our economy. The vast majority of workers are employees who receive a salary. Their interests must be aligned with those of their employers. Incentives such as bonuses, which motivate workers and bolster their performance, play an important role here. It is rare that firms and workers are bound by mutual affection; it is more often the case that they collaborate in their pursuit of individual goals. A worker’s primary aim, for instance, might be to secure a regular income and avoid exerting too much effort in doing so. In contrast, a firm wants its workers to perform as effective as possible. Each party behaves strategically, prioritizing their own interests over mutual benefit. This can create principal agent dilemmas if, for example, the actions of a worker are difficult to monitor. Understanding this relationship and designing effective incentive structures is a major concern in personnel economics, both for theory and for empirical research. The importance of carrying out research into the firm-worker relationship has been confirmed by the bestowal of this year’s Nobel Prize on Bengt Holmström and Oliver Hart. Holmström’s research, for example, on the “informativeness principle” deals with principal agent theory and has strongly influenced personnel economics. According to Lazear and Gibbs (2009), the employment relationship is “one of the most complex types of economic transactions in the economy”. Among other things, the complexity of relevant research stems from the conflict- ing interests in this relationship, from information asymmetries and the difficulties involved in writing a contract which covers all features of a given job. Furthermore, whilst the interaction between firms and workers is shaped by many factors, only a few of these can be observed by the researcher. This illustrates that empirical research into questions concerning the interaction between firms and workers requires both innovative data and novel statistical and econometric methods. This thesis provides new insights into the interaction between firms and workers. In the fol- lowing five chapters, we will focus on different aspects of the employment relationship, and on various methodological issues relevant to research in the field of personnel economics. In the following, we are going to address “incentives, matching firms with workers, compensa- tion [and] skill development”, four of the “five aspects of employment relationships” identified by Lazear and Oyer (2014). In addition, we will touch on the fifth of these aspects, “the or- ganization of work”. In the first chapter, we compare how different incentive schemes affect performance in a simple and a creative task. The second chapter considers the role of player mobility on competitive balance in a sports market. Whilst the importance of firms’ and work- ers’ observable and unobservable characteristics in determining the individual’s participation in training is explained in the third chapter, Chapter four considers the reasons for variation in participation between male and female workers, as well as the impact of such differences on 1. GENERAL INTRODUCTION 4 wages. Finally, the fifth chapter explores how linking matched employer-employee survey data to social security records might lead to new forms of non-response. In addressing these four aspects, we make several contributions. Firstly, whilst these chapters have a largely empirical focus, they build on fundamental theoretical work, not only from the field of economics, but also from disciplines such as psychology, sociology and statistics. The- oretical models help us to understand the relationship between firms and workers. One example is the well-known human capital theory. This model indicates that education and training can be viewed as any other form of investment. These investments can lead to higher productivity, and can in turn also increase wages. Aside from increasing productivity, however, there may be other reasons for an individual to undertake further education and participate in training courses. Human capital investments might be used by an employee to signal private information to the firm. This is discussed in detail in Chapter four. Empirical research is essential as it allows us to test the accuracy of theoretical predictions by applying them to the real world. This is a primary objective of this thesis. Second, innovative datasets for the empirical analyses of the employment relationship must enable the behavior of the worker and of the firm to be observed simultaneously. In this study, we therefore utilize novel datasets which link the perspective of both parties. This includes primary data collected by the author and, not to forget, by his co-authors, but also secondary datasets which have been made available to the author. The secondary data includes matched employer-employee survey data allowing us to understand and explain the behavior of firms and workers. Rich survey data helps us shed light on the drivers of gender differences in training (see Chapter four). This data is also merged with social security records, thereby allowing us to model long-run employment biographies and to measure the business success of a firm (see Chapters three and four). Chapter five explores potential issues regarding the linkage of survey data with social security records. The primary data consists of a large-scale laboratory experiment covering more than 1,000 participants. In Chapter one, a randomized treatment and control group approach allows us to directly measure causal effects. This is much more difficult with non-randomized datasets. Chapter two uses novel information from sports competitions. Like laboratory experiments, sports markets allow us to directly observe the productivity of individual workers. We are therefore able to analyze mechanisms which remain unobserved in standard datasets. Third, the evaluation of complex employment relationships of course requires appropriate sta- tistical techniques, which can deal with hierarchical and bilateral interactions. The firm-worker relationship is hierarchical in two senses. Firstly, it usually concerns multiple workers at dif- ferent firms, and secondly, this relationship is not static but evolves and changes over time. We contribute to the research on the firm-employee relationship in several ways. We first propose novel methods, including multilevel models and machine learning algorithms that are well- 1. GENERAL INTRODUCTION 5 suited to this purpose and which of today have not been widely used in personnel economics so far. Secondly, we look at firm, worker and job variables and take the clustering of workers in firms into account, thereby acknowledging the particular complexity of the interaction. Fur- thermore, the generalizability of novel datasets which merge survey data with social security records, may be reduced due to “non-consent bias”. If respondents with certain characteristics tend not to provide linkage consent, a novel form of non-response could make a merged survey sample less representative of the population.