| Abstract: | Recent work in industrial and personnel psychology has extended earlier efforts to financially evaluate the utility of organizational human resources policies. Utility analysis now includes a variety of refinements that more accurately measure the costs and benefits of human resources programs, both in the present and in the future. While this work substantially improves the firm-level evaluation of many personnel policies, conventional utility models have ignored the effects of the external labor market on estimated utilities. Specifically there appears to be an implicit assumption that utilities are invariant across changing labor market conditions and that employees (both current and prospective), as well as other employers, will be unresponsive to these labor market dynamics. This paper examines the effect of relaxing these implicit assumptions on the magnitude of expected utilities. We conclude that, in general, the omission of these considerations overstates the likely utility of the programs being evaluated. |
