Aegidius Savio Mondol
In the world of competitive business market the concept of Human Resource has been gaining
popularity day by day as because every business house in this global market seeks to get the
best kind of employment in respect of working force for managing the huge workload in different
fields of business houses. This introduction of the workforce into a corporate business house
needs a proper economic channelization that is the appointments of this workforce needs to be
well justified related to companies profiteering motive and at the same time the best kind of
service available with the force .This brings the subject of HR Economics for better
Moreover, Human resource helps directly to remove the economic backwardness. It increases
labor efficiency and specialization. It increases labor mobility from which the executing
resources can be made more productive. The development of human resources increases the
knowledge of natural resources. New production technique, market and opportunities of
economic activities. The human resource also helps in the proper utilization of imported capital.
These all lead to the increase in production, employment opportunities and levels of living of
Human resource economics is a term that is used to describe the collective strategies and
approaches that seek to address the utilization of labor within the workforce and how that
utilization has an impact on the greater economic well-being of a nation or other locality.
Typically, this type of economics considers the impact of employee turnover, unemployment,
and even the role of labor unions and governmental policies on the efficient utilization of human
resources. The general idea of human resource economics is to understand factors that interact
to help grow and sustain the use of labor within the workplace to the mutual benefit of the
employer and the employee, while also measuring the impact of that relationship on the
economy in general. Using human resource economics in terms of function within a company
usually involves attempting to match the skills sets required for a particular job position with the
abilities of a specific employee. This process calls for evaluating the talents of the employee,
relating them to the work available and determining if both the employer and the employee will
benefit from the placement. In the best possible scenario, the employee is happy and looks
forward to coming to work, taking pleasure in what is accomplished during the workday. At the
same time, the employer is satisfied with the productivity of the employee and there is no need
to spend time, money, and effort attempting to replace that employees people want.
Compensation is frequently directly tied to the labor market. When certain workers are in short
supply, offering higher compensation may increase the number of persons hired. When the
economy is slower more people are happy to have a pay cheque. Since compensation, wages
salary, incentives are always required to be paid by the company and thus these factors are
controlled by HR, directly depend on the finance and corporate economic policy.
Human resource or HR as we commonly know has been redirected due to economic expansion;
the fast technological changes and the ways systems appreciate and use resources in the work
place. In 1970’s and 1980’s and even early 1990’s the training component of Human Resource
was primarily centered on providing with basic knowledge and expertise to perform their jobs.
A larger scale, human resource economics will often focus on assessing employment issues
that impact the greater economy. This can mean addressing issues of unemployment in one or
more industries, and how those figures impact consumer spending and general stimulation of
the economy. Attention to the impact of employment laws, whether positive or negative, is also
part of this process. Even the role of unions in protecting the rights of employees and how those
regulations impact the ability of employers to sustain a business operation over the long term
are considered as part of the economic aspects of human resources strategies and initiatives.
The scope of human resource economics seeks to understand and manage the effective usage
of labour so that all parties involved benefit. This means job placement that meets the needs of
both employee and employer, while also providing opportunities for growth that benefits both
parties in the future. From there, the impact of those efforts on the stability of the economy are
taken into consideration, which in turn helps to enact legislation that amends current labour
practices or possibly paves the way for implementation of new practices that ultimately benefit
everyone involved with that economy.
From the above discussion we can infer human resource and economics are related to each
other. They go hand in hand. We can explain it more vividly with some relevant examples.
Now before we give some examples, let us discuss some basic concepts of economics that is
Boom and Recession. An economic boom occurs when real GDP grows faster than the trend
rate of economic growth. In a boom aggregate demand is high. Typically, businesses respond to
this by increasing production and employment and they may also opt to widen profit margins by
raising prices. In economics, a recession is a business cycle contraction, a general slowdown in
economic activity. Macroeconomic indicators such as GDP, employment, investment
spending, capacity utilization, household income, business profits, and inflation fall,
unemployment rate rise.
In order to show how HR economics leaves an impact on different industries we may take an
example of the BPO industry.HR plays a key role in the development and execution of the
business strategy of a BPO where the entire business is people centric. The major challenge
faced by a HR manager relates to retention of employees. Various estimates suggests that the
average time to profit time for a new hire in BPO industry is about nine months suggesting that a
fresher begins to break even the investments made on him or her and earn profit for the firm
only after nine months. Attrition rate varies between 40 % and 50 %.
During recession fewer employees are jumping jobs in the BPO industry,. As a result, attrition
rates (the number of people quitting per 100 employees) for several listed BPO firms have come
down by 5-13 percentage points on a sequential basis.Genpact’s employee attrition rate for the
quarter, measured from day one of employment was down by 5 percentage points to 21 per
cent from 26 per cent in the preceding quarter and 24 per cent for January-March 2008. If the
attrition rate, were to be measured after employees completing six months of employment (as
many of its competitors do), Genpact’s attrition rate would be 18 per cent.
Another example we may give is the car manufacturing industry where HR plays an important
role. This kind of industry employs labor from the locality thus providing employment to the
localities helping the economy of the particular state to grow. Also it might be economic to hire
localities because it is more costlier to bring labour from other states as it will include
transportation cost and residential cost. And socio political issue may arise as the locals may
raise objection due to the fact that the industry is not helping them to get jobs, infact their jobs
are being taken up by “outsiders”. This may put pressure on the ruling party to please their vote
banks and put pressure on the manufacturer to change their company policy.
There are a number of incentives, tax policy considerations, microeconomic principles and
theories, as well as human resources strategy issues that affect the employer’s decision to offer
These factors also impact how the benefits should be designed and funded. In this chapter we
will see how the employer might use them to make optimal choices in his benefit decision-
making process. In addition, we will introduce briefly the actuarial principles that determine how
benefit plans should be funded and how certain plan designs affect the rate at which benefits
are distributed. total rewards two entrepreneurs are starting a new airline to provide service to
three cities situated about 400 miles from each other.
Their strategy is to fill a void that currently exists for business travelers who are looking for a
low-cost, no-frills, and dependable commuter airline. One of the first issues the owners confront
is how to compensate their workforce, especially the pilots. They cannot afford to match the
high salaries and rich benefit levels of the large airlines, they have no stock or equity benefits to
offer at this point, they will not be profitable for several years, and a cash-based profit sharing
plan is not feasible. How will they attract pilots? The answer is that they must look at total
rewards, not just salaries and benefits long-term retention is not a priority. If they can find
competent pilots who need flight hours and are excited about working for a new airline, the
company will succeed. By offering flight hours in the cockpit, the company provides new pilots
with a valuable opportunity and the possibility of moving on to a bigger airline in the near future.
So, while the new airline is limited in what it can pay in terms of salaries, it can offer a bonus
based on company results, the promise of future equity when the company goes public,
moderate retirement and health care benefits, and plenty of flight hours. The benefit package
might include a defined contribution plan funded by tax-deferred employee contributions as well
as a high deductible health care plan that imposes significant cost sharing on the employee but
extends protection in the case of serious and costly medical occurrences. the salary and
benefits would be well below that of the major airlines, but would allow the company to compete
effectively in its markets. Its total compensation would be both affordable for the company and
attractive to its particular workforce.
Taking into consideration all the above discussions as well as the examples, we may conclude
that the impact of Economics on Human Resource either in direct or indirect aspect is
undeniable. Human Resource is the most Important and vital factor of Economic Development
or it can be said that humans are the agents of development. Human Resource development
has positive effects on the backwardness economy and society. The provision of education will
increase literacy which will produce skilled Human Resource. Similarly provision of health
facilities will result in healthy Human Resource which will contribute to the national economic
development. Beside this education, clean environment, investment on the human resource, will
all have its positive effects. Job opportunities would be created in the country. And even
business environment will flourish in the state which creates many job opportunities.