What Are Behavioral Economics? Or Why Johnny Lingo Paid Eight Cows for His Wife

From a Human Resources standpoint, Behavioral Economics occurs when an employer pays its workers more than what the current market demands, on the premise that the more valued the workers feel, the better they will perform.

Patricia McGrerr‘s  famous short story “Johnny Lingo’s Eight-Cow Wife” (Women’s Day, November 1965) is a good example of this principal. On the Pacific island where Johnny Lingo lived, a man could purchase a decent wife for two to three cows. A highly satisfactory wife could be had for four to five cows.  Sarita, the woman Johnny wanted to marry, was plain and skinny and, in the opinion of most islanders, worth only two cows, three at most.  To everyone’s amazement, Johnny paid eight cows for her.

After Johnny and Sarita wed, she became a beautiful, charming woman, one of the finest in the village. Johnny attributed her transformation to the price he had paid for her.

“Do you ever think,” he asked, “what it must mean to a woman to know that her husband has settled on the lowest price for which she can be bought? … I wanted Sarita to be happy, yes. But I wanted more than that. … Many things can change a woman. Things happen inside, things happen outside. But the thing that matters most is what she thinks of herself. In Kiniwata, Sarita believed she was worth nothing. Now she knows she is worth more than any other woman in the islands.”  

In theory, the more valued your employees feel (as reflected by their salaries), the more they will value themselves and their skills and the more likely they are to live up to your high expectations.

This is just one aspect of Behavioral Economics, the main gist of which is that humans do not always behave in an economically rational way.  Johnny Lingo’s decision to pay eight cows for a wife who was originally worth no more than two or three was anything but rational.

The sometimes irrational and, therefore, unpredictable decisions people make in regards to finances and economics can be a force for good (the transformation of Johnny’s wife) or for evil. Many economists blame the crash of 2008 on the irrational decisions made by banks and other organizations.

This theory of Behavior Economics plays an important role in Janet Yellen, our newly appointed Chairman of the Federal Reserve’s, approach to economics.

If this post is the first time you’ve heard of Behavioral Economics, it’s not likely to be the last, as Ms. Yellen takes over our nation’s economic reigns.

Only time will tell how many cows she is truly worth.

Total Compensation: Hot Lunches, Beer, and Cigarettes

Government sponsored alcoholism is now keeping the streets of Amsterdam clean and tidy.  Each morning at 9 a.m., alcoholics arrive at a Rainbow Group Center to begin work, removing litter from the streets and sidewalks, as well as from nearby Oosterpark. These workers ” take extended breaks for beer, cigarettes and a hot lunch, all provided free of charge,” before ending their workday at 3 p.m. So far local residents support the program. Since it began, “local police have received fewer reports of stabbings and muggings in the park.”

Oosterpark, Amsterdam

While the Dutch government does not fund the entire program, it is the primary sponsor. Critiques may complain that the government is not only enabling but fueling alcoholism. Proponents counter that the program offers  meaning and purpose to its participants’ lives. They also point out the savings generated by fewer arrests exceeds the cost of  providing people with beer, cigarettes, and  food in exchange for their services.

What’s your take?  Will this strategy attract unemployed alcoholics to Amsterdam just as the country’s decriminalization of marijuana  has attracted pot users as a Dutch tourist industry? Or is it a creative, humane way to reduce both litter and panhandling in one fell swoop?

Numerically Speaking – What You Can Buy These Days with $11,000 and Change

The latest projections for the average 2014 health care costs per employee (for large companies) is $11,176.  (HR Magazine’s December 2013 Benefits Briefs).

Is the cost of health care the number one factor driving American jobs oversea? When we pay for services or purchase products which were made in America, what percentage of the price tag goes to the cost of health care alone? 

Quote of the Day

“For small and midsize firms, one to five sick people may account for 50 percent of [health care] spending” – source: “Taxing Cadillac Health Plans May Produce Chevy Results” Health Affairs January 2010 Issue

Employee Assistance Programs – Costly or Priceless?

I have long thought of employee assistance programs (EAPs) as a costly luxury provided by only the most profitable businesses to their staffs. “The Integrated Employee Assistance Program” presented by Jeffery Christie (Global Manager, Halliburton EAP) at yesterday’s Montgomery County SHRM luncheon gave me a new perspective on EAPs.

According to Mr. Christie, the primary goal of an EAP should be to enhance productivity and safety in the workplace. Any subsequent benefits to the employees’ well-being are a consequence of meeting this goal.

Mr. Christie’s presentation shattered the myth of EAPs serving as little more than onsite counseling clinics. He proposed that, properly utilized, EAPs serve as multifaceted tools. The services they can provide an employer include:

• Return to work evaluations determining whether an employee who has been on leave for a mental health issue is actually ready to return to work. Such determinations can be especially crucial for employees engaged in safety sensitive jobs.
• Determining the need for any follow-up care required by employees returning from mental health related leaves.
• Designing and implementing alcohol and substance abuse policies.
• Designing and overseeing procedures for managing employees who test positive for drugs.
• Participating in the organization’s response to large-scale disasters which impact its workforce.
• Assisting employees following the death of a co-worker.
• Designing mental health and substance abuse benefits

Mr. Christie underscored the value of having an Employee Assistance Program by identifying some of the returns on investment an organization may expect from a fully utilized EAP. These returns may include:

• The retention of valuable employees going through a life crisis
• Improving employee engagement
• Developing competencies in managing workplace stress and team performance
• Reducing healthcare costs by identifying and helping employees to work through depression which, untreated, often presents itself as medical maladies
• Facilitating employees’ safe and timely return to work
• Reducing absenteeism
• Reducing accidents

A big thank you to Mr. Christie for sharing with us how an EAP can serve as a cost-effective asset to an organization when it is integrated into various programs (such as benefit planning, risk management, and supervisor training) rather than relegated to a back room visited only by employees in crisis.