HumanResource Management

Importance of economics in human resource management
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Importance of economics in human resource management
Labor or personnel economics is directly related to human resource management as it deals with the dynamics of employees such as their salaries, human capital investment, changes in employment as well as hiring practices. High productivity translates to higher wages. The employee turnover also affects the companies’ finances in such a way that a high employee turnover means high direct and indirect costs (Reh, 2017). The employee turnover is a rate calculated by dividing the number of employees who left the company during the year by the total number which was present at the beginning. Labor economics is essential as it determines ways through which the employee performance can be improved to improve their productivity.
When it comes to the application of economic principles, I think that human resource management does an excellent job in incorporating economic policies in their decision making. When it comes to decisions about expansions and increasing the average productions, some factors are considered such as the effect the development would have on the marginal revenue. In cases where the capital remains fixed, but other factors of production such as labor are increased, the result will be that this factor of production will become less productive. This is because the workers will not be able to work efficiently as they are many and are most likely to interfere with each other’s work to increase their productivity (Economics.

Help, 2015). Therefore, to make the profit, most companies produce at a level where the marginal revenue and the marginal costs are equal (Metcalf, 2016). This means that they consider the costs of expansion such as the employment of new staff and how the effect the whole expansion would have on the revenue collected.
Companies are becoming more conscious and cost-effective. Instead of giving their employees annual bonuses, companies now prefer formal incentive programs whereby they reward employees for specific behavior and encourage productivity (Coombs, 2014). This shows that human resource management is consistent with the economic principles required to increase revenue and profit.

References
Coombs, J. (2014). SHRM HR Magazine – December 2014 – 38. Retrieved from http://www.hrmagazine-digital.com/hrmagazine/december_2014?pm=2&fs=1&pg=38#pg38Economics.Help. (2015). The Law of Diminishing Marginal Returns. Retrieved from https://www.economicshelp.org/microessays/costs/diminishing-returns/
Metcalf, T. (2016, October 26). What Are the Benefits of Marginal Costs Equal to Marginal Revenue? Retrieved from http://smallbusiness.chron.com/benefits-marginal-costs-equal-marginal-revenue-59579.htmlReh, F. J. (2017, October 9). Learn How Treating Employees Well Helps With Turnover and Saves Money. Retrieved from https://www.thebalancecareers.com/the-high-cost-of-high-employee-turnover-2276010