Bidwell (2011). Paying More to Get Less: The Effects of External Hiring Versus Internal Mobility

Authors:

Matthew Bidwell – Wharton Management Department

Interviewers:

Ruo Jia – Stanford Graduate School of Business

Anjali Bhatt – Stanford Graduate School of Business

Article link: http://journals.sagepub.com/doi/abs/10.1177/0001839211433562

Question 1. Your research has always been focused on employment relationships, but this is the first of a series of papers on internal and external labor markets. How has this research interest developed, and how did this specific project influence your research agenda?

A central theme that links all of my work is understanding the changing nature of employment relationships, which have resulted in organizations now combining long-term and short-term employment in various different ways. My early work was on independent contractors, which I saw as an extreme version of this trend towards shorter term employment. I had always been interested, though, in the way that regular employment relationships have also become less stable, with much hiring in at all levels of the firm, and I wanted to understand what consequences this trend might have for firms and workers.

The genesis of this paper fit within this general interest. More specifically, I was reading statistics about the costs of turnover and replacing exiting workers, and I ended up wondering “How do they know? How do you assess the challenges of filling jobs from outside?” This then led to the idea of comparing outcomes for hired workers versus those entering the job from inside the organization.

Working on this paper has subsequently spurred a deeper interest in mobility processes generally, and the related organizational challenge of filling jobs. Other papers have explored when firms end up filling jobs internally versus externally (AMJ 2015 with JR Keller), and what role internal and external mobility plays in workers’ careers (Organization Science 2015, with Ethan Mollick). These are topics that I continue to explore in my ongoing research.

Question 2. Reading this article prompted us to wonder about whether employees and employers even perceive this imbalance between internal and external hiring processes. How does this tension manifest itself or if not, why doesn’t it? 

This is a question that I have spoken about with a lot of executives over the last few years. My sense is that the vast majority of them are not particularly attentive to these problems. Most people think that it takes around six months for new people to get up to speed, considerably less than the timeframe I found in my paper. Moreover, there is a growing body of qualitative and quantitative evidence from Boris Groysberg, Joe Raffiee and Russ Coff that people systematically under-estimate the importance of firm specific skills. I think that this may relate to the fundamental attribution error: we think people are either capable or incapable, and we don’t pay enough attention to the role of their surroundings (including its familiarity) in shaping their success.

Executives’ reactions to the pay premium received by hires are even more interesting. If you ask people what the costs of filling jobs from outside are, they very rarely cite higher pay. Yet when you mention this fact they all nod in acknowledgement. It may be that the managers making the hiring decisions are rarely responsible for the wage costs incurred, which would make those costs less salient to them. Either way, my experience is that employers and employees are aware of these issues but likely underestimate them.

 

Question 3. It appears that external hiring occurs because of the need for specialized talent or labor scarcity, possibly both. How might your findings change in an over-saturated labor market like Hollywood or Broadway?

I think it will depend more on the institutions within the organization. In principle, an oversaturated market should drive down wages for both insiders and outsiders as firms face little competition for talent. A talent surplus might differentially drive down wages for external hires where a surplus of talent is combined with protections for incumbent workers. In those cases, insiders’ protections allow them to bargain up their wages, while outsiders will accept low initial pay in order to enter the firm. Those sort of dynamics lie at the heart of a lot of dual labor market theory.

Question 4. The data you use in the paper is personnel data from a U.S. investment bank. Personnel data is notoriously difficult to come by so what advice would you have for young scholars on how to negotiate data? What data did you hope to get (for this project or others) that you were not able to (and what have you done with it)?

I was very lucky to get this data! Contacts certainly help. I really benefited from the help of my senior colleague Peter Cappelli, who introduced me to a number of organizations to talk about what I wanted to do. I was also just very lucky to come across a company that was willing to share this data.

I have two basic pieces of advice for people trying to get data out of companies. First, you must be able to frame a question that somebody in the organization is really interested in. Getting this kind of data out of companies is bureaucratically difficult: they need to get help from somebody in IT to extract it; they often need to get approval from their boss; their lawyers need to buy in, and so on. In addition, they face some risk of something going drastically wrong (e.g. you leave the data on a laptop on a plane). For the manager to want to go through that, you need to be answering a question that they believe is important and will help them in their jobs. In this case, I was lucky to have a question that intrigued one of the managers at the company. In other cases, I have tried to figure out how to frame what I am interested in in ways that will appeal to the company, or even adapt my question to fit their interests.

The second piece of advice is to take time in negotiating the NDA. Companies often start off by presenting a standard contract that they use with all suppliers that gives them total rights to block everything that you want to publish if they don’t like it. While you might trust the person that you are working with, it is worth remembering that there is a high probability that they will have moved roles or firms by the time that you are finalizing publication (that happened to me here). We spent months developing a contract that was able to protect the company’s interests (no disclosure of the firms’ identity, no disclosure of individual information, limits on my ability to publish data on individual jobs) while also protecting mine (results of aggregate analyses were not confidential and could be published). Having spent that time spared me a lot of anxiety later in the process.

Generally, I was very pleased with the data in that it was surprisingly comprehensive. I would love to have had data on hard performance metrics (trading profits, sales revenues, etc.) but beyond that it was everything I could have asked for.

Question 5. We noticed that some of your earlier work (for example, your work on brokerage with Isabel Fernandez-Mateo, Organization Science 2010) combines field interview with firm level data. What advice would you give about when to use a mixed methods approach?

I think that the best answer about when to use a mixed methods approach is “whenever you can”. I have always really enjoyed the process of qualitative work, and the reassurance that it gives me that I understand how decision makers are thinking and what is likely to be driving the patterns that I see in the data. It can also be a great way of ruling out alternative explanations that are difficult to address with the quantitative data. Done well, mixed methods research also provides a richness to the writing that can be lacking in purely quantitative work.

So why isn’t all of my work mixed methods? Often it can be difficult to get the access necessary to interview key decision-makers. In writing this paper I was surprised to find that companies were willing to share their data with me, but were not prepared to let me go and take up hiring managers’ time with my questions. Other research which uses organization-level or labor-market data has not really lent itself to interviews either. Another constraint on mixed methods work is obviously the space that you need to present qualitative findings alongside quantitative. In order to do justice to both kinds of data, you can end up with very long papers that don’t necessarily make journals or reviewers happy. Nonetheless, I think that mixed methods approaches are a very important means of making sure that we really understand what we are studying.

Reference:

Bidwell, M., & Fernandez-Mateo, I. 2010. Relationship duration and returns to brokerage in the staffing sector. Organization Science, 57.

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