Human Capital Management

For Human Resources Executives

A Brief Review of HR, Organizational Psychology, and Economic Systems

Erik A. Lenderman

R. Y. Langham, PhD

Review of Psychological Experiments

Copyright © 2017, 2018 Erik A. Lenderman

All rights reserved.

Published in the United States of America by Erik A. Lenderman

Boulder, CO

Printed in the United States of America

Disclaimer: There is no content contained within this work which is intended to diagnose or treat disease, advise on investment practices, or serve as a substitute for a licensed attorney.

#   

# Table of Contents

Introduction

Principles of Human Capital Management

Principles of Economics

The Marketplace of Stock Exchange

Principles of Psychology

Stimulating Behavioral Change

Lessons From Unethical Psychological Experiments

Principles of Early Economic Thought

Foundations of Modern Economics

Modern Economic Theorists

The Great Debate: Austrians vs. Keynesians

Practices in Human Capital Management

HR Compliance for Employers

Citations

#   

# Introduction

The primary objective of this work is to present a review of several critical elements of human capital management for executives. This work is designed to address best practices in human resource management, behavioral psychology, regulatory compliance, and market economics. The first section of this work will review several theories of organizational management and critical principles of economic theory. The second section of this work will review the supply and demand factors that are influenced by behavioral psychology. This section will also review the characteristics of human behavior and potential methods for stimulating change within an organization. Psychology expert R. Y. Langham, PhD will also conduct a brief review of 10 psychological experiments in order to address subjects related to psychological research and ethics. This work will also review a broad history of theories in economics, which have developed throughout the past 2,000 years. Finally, this will review best practices for human capital management and compliance with government regulations.

The content of this work is designed to serve as a general introduction to each of these fields rather than an exhaustive study of the subject, which would be best reserved for multiple publications. Therefore, this work may be best applied as an introduction to the subjects that follow so as to provide for an opportunity for further study at a later time.

#   

# Principles of Human Capital Management

## Principles of Human Capital Management

The practice of human capital management for the modern corporation requires the recognition that all members of the organization are critical for it's success.

Therefore, executives and members of the leadership team must monitor the performance of their human capital in order to ensure that their company continues to grow and develop within the market. The single most valuable assets for an executive leadership team are the members of their organization, because these are the individuals who implement organizational tasks, which are critical for survival.

Consider: There is no single company on the planet, which is not operated by human capital, and until the robot revolution comes to replace all human workers, this will continue to be the case. Therefore, executives must ensure that they have familiarized themselves with theories of management, the principles of markets and economics, strategic interventions, organizational psychology, and a review of global economic thought.

### Classical Perspective

The classical perspective is associated with the industrial revolution and it's focus upon increasing efficiency within markets. This perspective includes both Scientific Management and Bureaucracy Theory (Shafritz & Ott, 2000). Frederick Taylor's theory suggests that Scientific Management requires the division of labor between managers and workers. Therefore, management's role includes the formulation of incentives based upon performance, implementing standardized training programs, encouraging individual responsibility for assigned tasks (specialization), and ensuring that work is completed efficiently (Hertz & Livingston, 1950). The classical perspective holds that such systems must be comprised of specified goals and formalized roles, which serve to guide uniform organizational behaviors. These stable organizations are therefore designed to result in a predictable mechanistic system, which may operate at peak productivity (Taylor, 1972).

Meanwhile, Max Weber's bureaucratic ideal proposes that a hierarchy of super-ordinate and sub-ordinate offices may design and implement rules and processes through the successive layers of a command structure. Therefore, bureaucratic offices may be managed in accord with written rules and regulations, where management provides training in order to properly implement standardized processes. However, Weber also acknowledges that bureaucracy may result in the accumulation of a disproportionate amount of power for those at the top of the hierarchy, which may result in oligarchy. Therefore, Weber's theory recognizes that such efficient organizations may restrict the free will of the individuals who do not participate in the executive group. Consequently, he believes that workers must retain the right to appeal their executive team's decisions in order to promote an open flow of communication (Weber, 2013).

### Neoclassical Perspective

The neoclassical perspective is associated with the Hawthorne studies of the 1920s, where affective, sociological, and psychological behavior must be integrated when developing organizational strategies (The Wisest, 2011). The 20th century's "Hawthorne Study" by Elton Mayo and his team demonstrated that the sociological, psychological, and economic needs of employees are critical for developing a complete model of human drives and behavior. The study was conducted at the Western Electric Company's Hawthorne Chicago facility, which produced components for telephone equipment. The study addressed four elements of human productivity, which included illumination, work-hours, working conditions, 20,000 qualitative interviews of worker preferences and experiences, and social system analysis. The results of this large seven-year study suggested that productivity could be enhanced through optimizing the relationships between managers and their co workers. However, the Hawthorne study was criticized due to it's strong bias in favor of sociological factors rather than a balanced approach that also addressed organizational efficiency requirements. This was one of the first studies to establish the foundations for a modern work-force, which addressed the interior psychological needs of the organization's human capital.

### Modernization Theory

Modernization Theory described the manner in which individuals migrate from rural areas into cities (Hemant, 2011). Modernization Theory regarded the development of urban environments as a natural characteristic of the modern industrial civilization. Specifically, cities developed, because companies needed workers to remain readily available for industrial manufacturing facilities. The Western nations believed that modernization through industrialization was the best means by which to achieve progress within a civilization, while Middle Eastern countries believed that modernization could create a gap between the rich and poor.

### Systems Theory

Systems Theory represents a way of thinking about how physical, biological, ecological, sociological, economic, and other systems work together in order to form a whole (Bertalanffy, 2015). Earlier approaches to organizational management utilized a mechanistic, closed systems approach, where elements of a system were regarded as machine-like and required uniformity in supply, production, and transaction. However, the extensive bureaucracy, which resulted from this approach resulted in the development of the planned approach to organizational change. Here, objectives were focused upon incrementally implementing one specific change at a time. Conversely, the systems-thinking emergent approach to organizational change began to develop during the 1980s. This strategy suggested that change was a continuous and spontaneous process. Meanwhile, the punctuated equilibrium model suggested that organizations evolved over extended periods of time, punctuated by brief periods of sudden and dramatic change, which influenced the organization's subsequent behavior. Therefore Systems Theory holds that organizations must develop the capacity to adapt to complex systems and refine their strategies as they evolve.

### Complexity Theory

Complexity Theory rejected the mechanistic and planned approaches to change in favor of continuous and spontaneous change processes. The Complex Adaptive Systems approach (CAS) suggested that organizations must be treated as systems that are comprised of complex, emergent, interdependent, and co-evolving elements that synergize in order to evoke positive and lasting change. Alternatively, these elements may diverge and result in disintegration.

Complexity Theory emphasized that while ordered systems are constrained by strict rules and regulations that control behavior, chaotic systems involve free agents that may be observed through unique statistical models. Complex Adaptive Systems are regarded as self-organizing, adaptive, and self-regulating, with only basic policies and procedures required for guiding a system's general behavior. Complexity Theory also addresses knowledge management and organizational learning, because complex systems are information dependent, and cognition plays a critical role in the manner in which these systems operate. Complexity Theory also suggests that top-down, dominator hierarchies are rigid and require more flexibility. Therefore, egalitarian organizations may serve as an effective alternative to enhance information exchange and promote the revelation of the organization's intrinsic drives. Complexity Theory holds that executive leadership and management must focus upon the intrinsic self-development of their teams rather than command-and-control styles of policy development.

Furthermore, rather than encouraging managers to independently resolve problems, organizations may embrace conflict in order to stimulate the intrinsic problem-solving capacity, which may emerge within the company's team. This approach may produce a temporary increase in conflict followed by a more effective long-term solution when compared with a manager's suppress and control approach to problem solving.

### Theory X and Theory Y: Extrinsic vs. Intrinsic Motivation

Douglas McGregor developed Theory X and Theory Y in order to describe human behavior and motivation for the purposes of business management (McGregor, 1957). Theory X describes human beings as extrinsically motivated by external rewards, which requires strict supervision and penalties. This model presumes that employees are possessed of no intrinsic motivation to contribute to the development and implementation of a project, and managers are incrementally more intelligent than the base-level employees. Moreover, employees are regarded as motivated by income alone, and rewards and punishments are designed in order to train staff to behave in accord with company objectives. This theory may be most applicable to professions that do not make use of an employee's creative faculties but require simple and repetitious tasks. Theory X requires strict supervision, threat of punishment, and punishment. Conversely, Theory Y applies more relaxed policies and strives to stimulate positive morale within the workplace in order to foster cooperation. McGreggor has suggested that a balance of these two approaches to management may result in the optimal environment, which enhances consistency of work and uniformity of results. These organizations may produce higher quantities of high quality work within a specialized domain, because regulations and policies are clear and consistent.

McGreggor also proposed that individuals who conform with Theory X may appear to be possessed of an external locus of control. Conversely, those who conform with Theory Y may hold an internal locus of control. Managers with an external locus of control may prefer to focus upon task-functions in order to guide a group's behavior, and managers with an internal locus of control may encourage the group to explore organically adaptive strategies (i.e. group intelligence).

Theory Y suggests that individuals are intrinsically motivated to perform well for the benefit of their self-development. Those who conform with Theory Y characteristics tend to be the company's most valuable assets, because their intrinsic drive may require less supervision while producing more creative and high-impact results. Therefore, Theory Y employees are regarded as engaged with challenges for the purposes of self-actualization. Furthermore, Theory Y managers may engage with their staff 1-on-1 and treat them as equals rather than attempting to coerce them to behave in a particular manner. However, Theory Y management styles may also reduce consistency and uniformity of work-product, which could reduce a company's margins. McGregor has suggested that these two unique approaches to management must be implemented simultaneously in order to produce the optimal balance of intrinsic and extrinsic productivity.

### Contingency Theory

Contingency Theory holds that organizations are bound by internal and external constraints. These include leadership style, organizational format, organization size, and capacity for adaptation (Van De Ven, Ganco, & Hinings, 2013). Contingency Theory also holds that there is no universally ideal way in which to organize corporations or decision-making processes, because the nature of problems vary. Therefore, organizations must adapt in order to create internal and external congruence through their primary management systems. This requires that leadership develop the capacity to respond to the variability of group dynamics within sub-systems and work with their teams to ensure that information flows freely (Fred Fieldler).

### Disruptive Business Theory

Harvard Business School professor Clay Christensen has defined Disruptive Business Theory as the principle that guides revolutionary product and business models, which completely transform entire markets (Christensen, 2016).

Christensen described the manner in which the disk drive industry, hydraulic actuation equipment industry, and others underwent rapid innovation and transformation in order to fundamentally alter the nature of excavation and information technologies. However, he emphasized that the technologies themselves, while disruptive, were not the subject of his theory. Rather, the business models that implemented the these technologies were the innovations that transformed the industry. That is - Technological innovation serves as a function of product development, but the executive team's methods for implementing and marketing the technologies are fundamental to transforming industries through creating a disproportionately "unfair advantage".

Christensen also proposed that disruptive innovations may not be readily discovered through providing surveys to consumers. The reason for this is because consumers may not be familiar with the disruptive technologies in question when presented with a standard survey. Therefore, established firms that listen to their customer's feedback may be the most susceptible to becoming obsolete during market transformations. These well-established firms may form very tightly regulated systems in order to sustain their profit margins, which places their focus upon research and development, which is designed to maximize margins within their sector. Survey instruments may look to identify minor and incremental changes to products or services, which do not radically depart from their standard processes. Therefore, their research and development strategies may be focused upon maximizing opportunities within existing markets rather than disruptive emerging markets. Consequently, these emerging markets become excellent opportunities for small-cap companies with new and disruptive strategies.

Meanwhile, the spectrum of disruption may range from "low-end disruption" to "new market disruption". The former focuses upon customers who demand only basic performance from a product or service, and new market disruption focuses upon consumers whose needs are now only met through the new product or service. Furthermore, low end disruption products may improve more rapidly than customers can adapt to the new feature sets, so the technology's potential utility actually exceeds it's functional utility. Consequently, low-end disruptors may be focused upon a very small segment of the market in order to focus upon smaller margin sales. For example, a computer chip manufacturer may increase the performance of their hardware annually. However, software developers may lag behind for 1 - 2 years and fail to develop new code, which makes use of the increased hardware performance. This serves as an example of a low-end disruptor providing greater levels of potential utility when compared with it's functional utility during the intervening period of software development. New market disruption describes the manner in which a new product may suit new and emerging markets that earlier technologies could not satisfy. For example, an automobile company, which implements battery and electric drive train technology may cut fuel costs and increase performance when compared with combustion engines. The implementation of existing electric motor and battery technology is regarded as a disruptive innovation, not because batteries or electric motors are new - In fact, they are well established. Rather, their company's implementation of established technology into a fully functional vehicle represents the example of new market disruption.

Milan Zeleny has suggested that disruptive technologies and manufacturing models may be delayed to market due to limited market support networks. For example, the automotive industry is supported by a network of business interests, which derive their margins from the fossil fuel industry and a global network of fuel stations. Therefore, the introduction of an electric vehicle would require innovations in both the core product (the new vehicle) and a new support network (electric fuel stations). Therefore, industry networks are critical for ensuring that disruptive innovations are able to reach the market.

### Lewis Model

Richard D. Lewis has formulated a cross-cultural system of mapping human behavior and communications styles within organizations, which clarifies the ways in which management styles vary from region to region (Lewis, 2005). Multicultural studies therefore serve a critical role in enhancing organizational efficiency for diverse companies that work internationally.

#### U.S. Management Styles

The Lewis Model describes the Germans, British, Americans, and Australians as Linear-active managers.

These individuals may place a high value upon logic, technical details, and reason as a means by which to arrive at a decision, rather than emotion and sentiment. According to this model, management styles within the company may tend toward individualism, where executives and managers are responsible for strategic decision-making, even when open forums are used in order to acquire input from subordinates. These management styles may include strategic-visionary leaders and organizational / operations oriented leaders, which are typically executed by the CEO and COO, respectively.

#### Netherlands Management Styles

Meanwhile, the Netherlands management style, although also linear-active as with the US, may focus upon a more egalitarian and team-oriented approach to organizational development. The executive manager in the Netherlands may not appear to be directive. Rather, working through problems and arriving at solutions through team work is critical. This is similar to the management style of South America, but the family element is not strongly emphasized. The Netherlands management style is therefore one of collegiality and equality with an emphasis upon team-work. The manager may even appear to be treated with disrespect when observed by an individual with a linear-active, reactive, or command-and-control style of leadership, because they are not assigned any particular sense of inherited authority as a result of their leadership role.

#### Asian Management Styles

The Asian leadership culture may prefer to work with knowledge, patience, and introverted influence in order to create synchronous collaboration among members of an organization.

Modesty and courtesy are therefore of utmost importance to individuals with this leadership style. However, the Chinese culture is also linked with Confucianism, wherein all relationships are intrinsically unequal, and seniority rules the social group. Therefore, Western civilizations that do not strictly adhere to the hierarchy of seniority within their companies may be regarded as disorganized according to the Confucianist's natural order of power. Furthermore, Chinese management styles may tend toward directive command-and-control hierarchies, and subordinates are expected to unquestioningly implement the orders of their senior managers. Questioning the decision of a senior would cause loss-of-face for those involved. Moreover, managers typically assume a paternal role, which commands loyalty and strict obedience. Therefore, the manager must reciprocate through taking an interest in the well-being of their colleagues.

#### South American Management Styles

Multi-active managers may prefer the development of strong personal relationships, which are believed to be critical for persuasion and achieving objectives. South American, Middle-Eastern, and African Management styles may tend to focus upon senior leadership as paternal figures who must care for their organization's staff as they would care for a family. Employees expect to be treated with kindness and respect, and they may elect to create work-groups and committees rather than create a command-and-control culture. Therefore, the supervisor is expected to assume the role of a leader without necessarily appearing that they are unilaterally directing the group. Rather, they must appear to be a team player that contributes as an equal with respect for their colleagues.

# Principles of Economics

## Principles of Microeconomics and Macroeconomics

The principles of economics are primarily concerned with the properties of resource supply, distribution, and demand (Miller, 2016). This field of study concerns how individual agents interact and engage with each-other (microeconomic behaviors) to form aggregate results (macroeconomic systems). These elements, when considered as a whole, impact nearly every component of production and consumption within the global environment. Therefore, this section will review a variety of principles related to resource extraction and production (supply), resource management and distribution, and their relationship to market demands for those resources.

First, the theory of market equilibrium holds that free markets produce a balance between resource supply and demand. However, a variety of factors may cause an imbalance due to intervention from private or public parties. The purely equitable market would involve free agents who are possessed of equal access to information, negotiation power, and resource substitutes. However, this is not the case in naturally occurring economic systems, and several factors may inhibit the formation of efficient free market equilibrium. For example, consider the large corporation, which provides products and services to a small town with limited substitutes. The corporation is capable of dictating the price of those products and services to the community so long as no other competition is present (i.e. Monopoly). Monopoly may emerge as a single corporation, two corporations (duopoly), or oligopoly (several corporations). This prevents the formation of an efficient free market, because the corporation or conglomerate's disproportionate control over the local economy may prevent competitors from entering the market, providing effective substitutes, and encouraging reasonable prices.

Conversely, monopsony emerges when only one buyer is present, and a corporation is obligated to the buyer's preferred terms. Without multiple customers with whom to transact exchange, a single buyer may negotiate a very low rate to purchase the goods. Oligopsony describes a condition in which the unification of potential customers coerce the producer in a similar manner. These conditions could result in a loss for the seller and ultimately, insolvency. This serves neither the buyer nor the seller.

### Production

Production represents the conversion of system inputs into outputs, where commodities or services are exchanged (input) and utilized (output). These inputs and outputs are relative to nearly any stage of the supply chain, where inputs of ancient fossils into the earth become outputs of crude oil, once extracted. Similarly, the extraction of crude oil becomes an input into the crude oil supply chain once transported through a pipeline to a barge for sale. This continues onward, throughout the resource production and consumption cycle, which drives the global economy. Meanwhile, these inputs and outputs may be represented as either general consumption goods (fuel), investment goods (real estate, roads, bridges), public goods (healthcare, military, education), and private goods (food, water, shelter, etc.). Consumption goods are intended to be utilized once and are next converted into waste, and investment goods are designed to provide durable and growing value over time. Further still, public goods are designed for use by society at large, and private goods are for personal use. These should not be regarded as rigid classification systems but simply guidelines.

### Opportunity Cost

The cost of production (opportunity cost) describes the value of the nearest related opportunity if it were not engaged. For example, an oil company may be constrained by the quantity of crude oil that it can produce within a given year or quarter, so they must produce crude oil and convert their raw materials into a product with the greatest potential demand in order to command the greatest potential return. Therefore, the company may determine that petroleum production for plastics constitutes one opportunity of x revenue value, while the addressable market for fuel constitutes the greater opportunity to generate y revenue.

Provided that y revenue is higher, the company must determine it's opportunity cost if it chooses to pursue x vs. y. The opportunity cost is greater if it's crude is converted into petroleum plastics, because they would have lost the opportunity to command a higher price through the fuel market. This describes the relationship between the scarcity of resources, multiple opportunities for profit, and the decision to address one market over another (Buchanan, 1987).

Meanwhile, opportunity costs are not constrained to simple financial costs. For example, one may determine that creating an oil company to exploit an easily addressable market with high demand does not exceed the cost to the environment and public health. The company may recognize the risks to public health, but they could regard a shift to low-margin solar, geothermal, or other clean energy products as representing a risk to energy production. The capital investments may be higher, and the addressable market may be smaller for short-term financial growth. However, the 20th century's exploitation of oil resources at the expense of public health has placed the planet at risk of failing to support continued economic growth. This has further altered the opportunity costs of producing petroleum based products. Therefore, the opportunity of creating an entirely new market, securing early market-share, and producing next generation sources of energy production may represent a viable path forward.

### Production Possibility Frontier & Efficiency

The Production Possibility Frontier (PPF) represents the relationships among scarcity, cost, and efficiency. For example, one local economy may generate tobacco and wheat with tremendous efficiency, and the PPF describes the various quantity of combinations of the two goods, which are possible given constraints upon either labor, technological capacity, or real-estate capacity (capacity to sow, harvest, and distribute these resources).

The Production Possibility Frontier may describe one scenario in which the quantity of wheat produced influences the productive capacity of tobacco. The PPF is constrained when only 100 acres of land are available to produce each crop. Therefore, increasing the production of one good may result in a decrease in production for another good (the goods are inversely related). The slope of the curve describes the trade-off (opportunity cost) between the decision to produce each good. The relevant factors to consider may include the number of people who plan to purchase tobacco vs. wheat during the 3rd quarter. Therefore, the PPF represents a critical value, which must be addressed when preparing to leverage the productive capacity of any asset (i.e. real-estate, human capital, machine productivity, etc.).

Meanwhile, economic efficiency describes the way in which a system converts inputs into outputs in lieu of the available resources. For example, efficiency may be enhanced once human laborers are replaced with machine laborers (i.e. time saved, healthcare costs saved, law-suit costs saved, etc.).

### Supply and Demand

The market's relationship between goods produced and consumed is typically described through the principle of supply and demand. Supply represents the total quantity of goods or services available in the market. This is impacted by the broader economy's PPF for individual or aggregate resources. Meanwhile, demand represents the total quantity of resources that individual economic agents or their aggregates are prepared to purchase. Higher supply and lower demand tends to result in reduced prices (Higher scarcity = Higher perceived value). Meanwhile, lower supply and higher demand tends to result in increased prices (Lower scarcity = Lower perceived value). The balanced system assumes that agents are consistently rational when making a decision about the quantity of goods to consume in lieu of their income, current prices, anticipated market conditions, etc. Meanwhile, constrained utility maximization reflects the manner in which agents consume goods in order to maximize their leverage within a market. This occurs in lieu of the constraints on their income, preferences, and other variables.

Theoretically, the economy reaches market equilibrium when supply and demand are equal. Therefore, prices below equilibrium may result in a shortage of supplied goods in comparison with demand. During this process, suppliers may alter their marginal cost through adjusting production methods, labor costs, electrical consumption, etc., which may result in increased profits or reduced price. These management factors describe the elasticity of the supply curve during brief and extended intervals of time, which must be continuously adjusted in response to market conditions. Therefore, market equilibrium should not be regarded as a fixed, final moment in time, but rather, a shifting process by which supply and demand interact and modulate the behavior of economic agents.

Marginalist Theory regards consumers as rational agents that strive to maximize their leverage within a market environment. They achieve this through seeking the best price available in lieu of their income, preferences, savings, and anticipated market conditions. Once the marginal utility of a good's net price reaches zero, there is no gain from consuming additional resources, and demand is suspended. Similarly, producers must review their marginal revenue (the price needed to match the perfect competitor) against the marginal cost of a good in order to determine their marginal profit. Once marginal profit reaches zero, increases in production are suspended. Consequently, changes in market equilibrium (quantity and price) are impacted at the margin of utility and profit.

### Specialization

Specialization is critical for ensuring economic efficiency for individuals or the broader economy. Through specialization, one may achieve a comparative advantage through the high level of production of one product or service vs. another. For example, a private corporation that specializes in legal, medical, or pharmaceutical production may achieve a high level of efficiency through developing mastery of the processes, which are unique to their domain. Through specializing, these groups may become increasingly efficient and produce the highest quality products within their market.

For example, companies near MIT may choose to remain near-by in order to recruit the best engineers for their firms. Conversely, companies may establish their headquarters near farm land in order to recruit farm owners to serve as sub-contractors to produce wheat products. Similarly, solar power companies may choose to locate their businesses near deserts and other sources of sunlight to increase productivity.

### Absolute and Comparative Advantage

Absolute advantage describes the degree to which a single agent may produce a specified quantity of goods using the same amount of resources as another entity. Comparative Advantage describes the degree to which an individual may produce a specified quantity of goods at a greater rate of return than an individual with the same resources. For example, if a textile company in Country A is capable of converting 1 unit of cotton into 4 units of cloth, and Country B is capable of converting 1 unit of cotton into 2 units of cloth, Country A is said to have a greater absolute advantage.

However, Country A may have a lower comparative advantage, because they have more competitors, so they must reduce the price of their goods and so take a loss during one or more quarters. Meanwhile, Country B has almost no competitors in it's region, so the cotton that it produces always yields a profit. Therefore, although Country A has a higher absolute advantage, it's lower comparative advantage equalizes it's total profitability when compared with Country B. However, Country A could leverage it's higher levels of output to increase it's total customer base over time. Therefore, although it's greater absolute advantage is neutralized in the short run due to it's lower comparative advantage on annual profits, Country A could indeed achieve a greater absolute and comparative advantage if they achieve a monopoly during the following 10, 20, or 100 years of consistent gross product growth. This is only one of many potential results of this example.

### Firms & Economies of Scale

Producers and consumers may trade through corporations, partnerships, and trusts in order to enhance their marginal profit and utility. Through combining human labor and capital inputs, firms may achieve greater economies of scale, wherein the cost per unit declines proportionally as unit production increases.

Perfectly competitive markets require that multiple producers exist, which ensures that prices remain competitive. However, the emergence of monopolistic competition may result in imbalanced market conditions that reduce the responsiveness of supply and demand curves. The result is a rigid system that extracts value from consumers through disproportionate price-setting power, which may reduce supplier innovation. Monopolistic firms, which reduce their investment into innovative or novel products may realize higher profit margins during the time in which they serve as price-setters. However, they may become increasingly susceptible to external competitors who could emerge as disruptive innovators in their fields.

### Game Theory & Uncertainty

Game Theory refers to the strategic engagement between two economic players / agents, which forms the foundation for market behavior. Economic uncertainty refers to the lack of predictability of future gains, losses, or utility for multiple agents. Therefore, Game Theory works to anticipate how agents will behave in in lieu of uncertain economic conditions. This may be applied to behavioral economics, which recognizes that individual agents impact each-other's state and trigger adaptive responses. Game Theory suggests that individuals each select strategies to maximize their personal benefit, regardless of whether their interests conflict with another player.

Game Theory makes use of simulated economic experiments, which are designed to test how agents behave. For example, The Public Goods Game was designed to determine how participants in the experiment would behave once they received a specific quantity of tokens with which to play a game. During this experiment, each individual privately decided on the total quantity of tokens to place in a publicly shared collection of coins (Hauert, 2005). The public collection of tokens would then be multiplied by a specific factor such that a greater level of multiplication would result in a greater collective pay-off. The Nash Equilibrium theory would have predicted that each person would choose to retain all of their tokens in order to maximize personal gain, but this typically does not occur within experiments (Janssen & Ahn, 2003). Rather, players tend to contribute their tokens, and their contributions increased as the multiplication of the tokens increased.

Meanwhile, participants tend to increase their contributions once their contributions are made transparent to the other players, which reduces the free-rider problem. Furthermore, permitting the players to provide punishments to those who fail to contribute and also provide rewards to generous players tends to produce greater collective contributions (Andreoni, Harbaugh, & Vesterlund, 2003). Therefore, the combination of punishments and rewards tends to produce the greatest increase in cumulative contributions when compared with conditions that only punish or only reward other players (Sefton, Shupp, & Walker, 2007). This experimental approach to economics has since enhanced the field's knowledge of human behavior.

### Market Failure: Information Asymmetry

Market failure addresses a variety of problems that may interfere with perfectly efficient economic systems. For example, information asymmetry describes situations in which one party to a contract may hold more information than another, which provides them with asymmetrical leverage within a system of exchange. For example, a pharmaceutical company may be aware of a medication's adverse side-effects, but they may not disclose those side-effects until they have achieved marginal profit on their patent. Consequently, the corporation may achieve a net gain, but the patient may experience a net loss through medical expenses. Meanwhile, the pharmaceutical company may also serve as the supplier for solutions to the consumer's secondary medical problems, which resulted from the original exchange - Further maximizing the corporation's profit and reducing the consumer's benefit. This describes one example of the information asymmetry market failure, but many other examples exists.

### Externalities: Positive, Negative, Positional, Inframarginal, and Technological

Externalities represent the social benefits and costs that result from the production or consumption of goods, but which are not intended to produce that result. For example, the positive externalities of an oil pipeline may include increased jobs for those who work in rural areas while constructing the pipeline. This may enable families to provide a higher standard of living for their families, send their children to college, and produce a scientific breakthrough 20 or 30 years later. The negative externalities of the pipeline may include fluid spills, which adversely impact the rural community's clean water and their capacity to survive. The may have been unintended consequences of the company's oil pipeline, which were incidental to their primary objectives.

Positional externalities may occur in order to produce benefit for a single agent within a competitive market, but which adversely impacts all agents. For example, a commercial-free online entertainment company may become extremely successful as a result of their lack of advertisements, and many other companies may begin to model their behavior in order to increase their ratings. However, after several years they choose to place ads on their platform, which generates a profit. Soon, the other companies also place ads on their platform, and they all sign 1-year contracts with their advertising clients. However, a new company emerges to provide ad-free entertainment once more, and viewership for the other companies drops precipitously - Before their ad contracts have ended. As a result, the ad-based companies collapse, and the advertisers lose revenues due to their contractual obligation to continue paying for their ad space. Positional externalities describe the manner in which agents position themselves as unique within a system.

Inframarginal externalities describe conditions in which there are no benefits or losses to the marginal consumer. Here, there is no gain or loss at the margin, but benefits and costs are present for a small group of consumers within the inframarginal range.

Technological externalities reflect the relationship between multiple firms, where one firm's productivity may impact that of another. For example, one firm may acquire a robot-driven labor force, which dramatically reduces their costs while increasing both their absolute and comparative advantage. This, in turn, could suppress wages in a competing manufacturing facility, which employs human laborers. This may trigger a drop in standard of living, risk of unemployment, and recession. Conversely, the increased efficiency and output could also result in a suppression of product prices, because total human income may drop throughout the economy, thereby reducing the supply of money, which increases it's value and purchasing power.

### Market Failure: Public Goods and Services

Market failures may occur when the private sector fails to provide capital inputs for critical infrastructure. This may include public goods, which are regarded as critical for all members of a market (The 'Commons'). For example, the preservation of fresh air, clean water, national security, education, roads, and bridges may be regarded as capital intensive goods and services, which private parties typically do not supply. However, these resources may be regarded as critical infrastructure, which are required for the broader economy to function. The lack of access to these public goods may result in disruption of the economy, so most nations have worked to provide these services through the government tax system. Therefore, the government may choose to provide the capital inputs in order to address these public needs.

### Real Value, Nominal Value, and Rigidity

Real value describes a commodity's actual value in relation to other goods, and it is adjusted for inflation in order to compare quantities as if the prices did not undergo an inflationary change. Real changes therefore exclude the inflationary effect. Conversely, nominal value is not adjusted for inflation, so inflation will impact this measurement. Meanwhile, nominal rigidity, price stickiness, and wage-stickiness are terms that describe scenarios in which the nominal prices of goods or services are resistant to the change that one would expect of a perfectly efficient market.

Complete rigidity may manifest as stagnant wages, where the value of an individual's labor has remained consistent but the nominal price for that labor has not risen to match inflation. Moreover, rigidity may occur within the context of the cost of goods, where government regulations may place a cap on the rate at which the cost of goods may rise. For example, legislated rent-controls on housing may prevent the property owners from increasing the cost of housing beyond the rate of inflation plus a small profit margin. This reduces the incentive for a real-estate developer to build new housing in the region and therefore results in properties that are not upgraded to attract high-income residents. Consequently, the rent-controlled housing may remain affordable but decreases the quantity and quality of housing with the passage of time, because real-estate developers reduce their investment into production and maintenance. The result may be a higher cost of living for the properties that exist, because new construction is reduced, but population growth continues (i.e. Supply of real-estate becomes inelastic, and demand continues to grow).

These represent critical principles of economic theory, but there are many other factors to consider. Therefore, this publication includes more information on several schools of economic thought, which range from promoting the free-market to government regulated markets.

#   

# The Marketplace of Stock Exchange

## Human Capital Management & Stock Markets

Human capital management professionals must ensure that they are familiar with the principles of the stock exchange in order to manage resources throughout periods of economic expansion and contraction.

### Stock Exchange to Raise Capital

The stock market is a system designed for firms to rapidly raise capital for growth (Cagan, 2016). This market place enables individuals and corporations to purchase ownership stakes within the companies that have offered stock. That is, in exchange for a specific dollar amount, one may purchase "shares" of ownership, which are known as "equity", "stock", or "secured interest" (i.e. securities) in a company. Stockholders may in-turn, derive a profit from the company's profit-sharing mechanisms or through selling the security at a higher rate once the company has become more profitable or more attractive to other prospective buyers.

Stocks may be traded within controlled exchanges, which are governed by their country of incorporation or other markets in which they are regulated by other governments. The New York stock exchange is the largest stock exchange in the world by total investment (i.e. Market capitalization). Therefore, companies incorporated in other countries frequently strive to secure entry into this market in order to access greater levels of capital to finance their growth. The Japanese and United Kingdom (UK) stock markets are the second largest to the U.S., and the total number of exchanges is 60 with a total market capitalization of approximately $69 trillion. The top 16 stock exchanges are those with individual market caps of at least $1 trillion, and these are all located within North America, Europe, and Asia (This represents 87% est of the global stock market capitalization).

### Stock Exchanges - The Institutionalized Market

Stock exchanges are financial organizations, which provide a mechanism through which stock traders may purchase and sell securities that are listed on their exchange. The presence of an exchange floor enables individuals to physically represent themselves and their clients through open outcry, where bids are entered into the exchange verbally.

However, exchanges are increasingly moving toward digital mediums, wherein individuals may execute trades from home or a remote bank, and computers are also authorized to execute trades according to pre-programmed algorithms designed to optimize margins (i.e. Microtrading). Market participants may include individual private investors (citizens) and institutional investors (firms). Institutional investors may include corporations, mutual funds, pension funds, hedge funds, exchange traded funds, and insurance companies, etc.

Stock markets have been subjected to the efficient-market theory, where security prices are claimed to be accurately priced. This is based upon the theory that the only information, which should influence trade are the available market data sets such as quarterly profits, yield, competition, etc. However, this "hard" efficient market theory does not account for reality, wherein human beings and their non-rational decision making influences prices. Therefore, the traded value of stocks may or may not accurately reflect the real value of the security at any point in time.

Human beings do not accurately calculate the available statistical data due to their variable capacity to process information, which is influenced by psychological state (i.e. Valuation or de-valuation / anticipation of expansion vs. anticipation of contraction). Psychological state is, in-turn, influenced by a large variety of biases that introduce additional market inefficiencies. These biases include psychological stage of development, morally biased investment, past-events as predictor of future-events bias, observing patterns where none exist, etc.

### Market Capitalization

Companies may be categorized according to their market capitalization (market value of all outstanding shares), which ranges from small-cap ($250 million - $2 billion) to medium-cap ($2 - $10 billion) and large-cap ($10 billion+). Smaller companies tend to represent higher risk investments with higher potential yields. Conversely, increasingly larger-cap companies tend to be lower risk with lower yields. This is because small-cap companies may be potentially disruptive, which could dramatically increase the company's stock price, but they are also at greater risk of failure due to their small and uncertain market-share. Medium and large-cap companies are possessed of greater certainty with regard to their more well-established market-share, but the stock prices of these companies also tend to change more slowly due to reduced volatility. Therefore, larger companies may present greater levels of investment security. However, their yields also tend to be lower, because their low risk has already been priced into their stock's value.

### Stock Market Crashes

Stock market crashes may occur when share prices for large groups of companies drop precipitously, which arrests one or more company's capacity to secure new operating capital. For example, if a large group of investors simultaneously lose confidence in the profitability of the economy for a wide range of companies, they may choose to sell their stock, which suppresses it's value rapidly. These companies therefore lose the capacity to finance their growth and operations, which further suppresses their profit-margin outlook and could result in additional selling. However, this also provides an opportunity for investors to secure stocks at a price that is below their actual value, which increases their potential long term returns.

### Stock Valuation

The principle methods by which one may value a stock include the Price-to-Book Ratio (P/B), Price-to-Earnings Ratio (P/E) Price-to-Earnings Growth Ratio (PEG), and Dividend Yield.

### Price-to-Book Ratio: The Real Asset Value

The Price-to-Book (P/B) ratio represents the value of the company if it were to be sold in it's entirety. This "book price" represents the value of the real assets that a company owns, which may include real-estate, equipment, and corporate owned stocks and bonds. Although the book value may fluctuate in accord with market conditions and with depreciation of materials over time, the P/B ratio may serve as a more accurate baseline for determining the core value of a company's actual assets on hand without the speculative valuations that inflate a stock's publicly traded price.

### Price-to-Earnings Ratio: Quarterly Earnings vs. Stock Price

The Price-to-Earnings (P/E) ratio represents the ratio between the company's actual quarterly earnings relative to the price of the stock. Therefore, stocks that rise rapidly may do so in response to meeting or exceeding quarterly profit targets. Stocks that have a high price within a securities exchange but low earnings typically descend to a lower value once the P/E does not meet it's revenues targets. Therefore, P/E represents a company's current price relative to it's earnings.

### Price-to-Earnings Growth: Records of Historical Growth

The Price-to-Earnings-Growth (PEG) ratio represents the comparison between a company's historical growth rate and it's current growth rate. The PEG is calculated through dividing the Price by it's year-over-year earnings growth. The lower the PEG ratio, the better the purchase price for a stock based upon it's estimated future earnings. Moreover, comparing two stocks through PEG may demonstrate the relative value of each stock, where a PEG of 2 suggests that one could purchase the stock at 2x the price when compared with a stock with a PEG of 1. The PEG method is speculative, because past behavior is not always an effective measurement of future performance.

### Dividend Yield

Dividend Yield may also serve as an effective means by which to value a stock, because dividend revenues are typically produced consistently when compared with trading on a stock's market volatility. Therefore, if a stock declines in purchase price for several months, the dividend typically remains consistent. However, high dividends (8 - 10%+) typically represent more high risk investments, because the higher yields are designed to attract investors who do not believe in the company's capacity for long term growth. Therefore, companies may offer a high initial dividend in order to attract investment, and they may subsequently reduce their dividend distributions as time progresses.

### Monitoring Stock Prices & Economic Performance

John Bollinger developed a method for monitoring and interpreting the behavior of stock prices over time (Investopedia, n.d.). The central band monitors the historical and present moving average, which represents a simple calculation of the stock's price as a line.

Bollinger Bands, Investopedia

Meanwhile, the upper and lower bands may be regarded as standard deviation points at which a stock may regress toward the mean for a specific time-frame (i.e. whether a stock is overbought / overpriced or oversold / underpriced) (Forexop, n.d.). Therefore, present moment stock prices that approach the upper or lower bands may be subject to a sudden change. For example, reaching a high resistance point on the upper band may signal that a stock is due to decline in price, and reaching a low resistance point on the lower band may signal that a stock will soon rise in price. Crossing the bands and exceeding these resistance points may represent a new trend in the stock's behavior.

## Leading Economic Indicators

The principle means by which to predict and retro-actively analyze the health of an economy as well as a potential recession or depression includes leading indicators and lagging indicators (Yamarone, 2012). The leading indicators may be beneficial for predicting future economic events. These indicators include the stock market, manufacturing activity, inventory levels, retail sales, building permit issuance, the housing market, the rate of new business startups, as well as hiring and layoffs by large corporations. The lagging economic indicators may include changes in the Gross Domestic Product (GDP), income / wages, unemployment rate, the consumer price index (inflation), currency strength, interest rates, corporate profits, the balance of trade, and the value of commodity substitutes relative to the U.S. Dollar.

## Stock Market

The stock market may be beneficial for developing an understanding of company profits and anticipated company profits (forward guidance). Publicly traded companies make their historical and anticipated earnings available for review in order to provide traders with access to information that will guide their analysis of a company's profitability and potential returns on investment. Therefore, the stock market is a leading indicator of the performance of an economy, because this reveals supply and demand trends rapidly. Stock markets with broad-based revenues posted across the majority of sectors may suggest that suppliers are moving inventory, and consumers have sufficient capital to engage with the marketplace - Trade is flowing. However, the stock market is not always a reliable indicator of economic growth, because company earnings may not accurately correspond with their stock price. Traders may be overly optimistic about a company's potential growth, so a mis-valuation could cause a company's stock price to trade at 6 to 14 times it's actual earnings and more. Therefore, stock markets with high price levels and low revenues (P/E ratio) may not accurately reflect true supply and demand trends but rather the mis-calculation of economic value by traders.

### Manufacturing Activity, Inventory, & Retail Sales

Manufacturing activity may serve as an effective indicator of economic health, because increased output suggests increased consumer demand and therefore higher levels of trade. Increased manufacturing levels typically suggest increased hiring of workers within factories, which further enhances trade. Manufacturing levels may also misrepresent actual economic health, because manufactured goods could suddenly see a drop in demand, and inventory levels could grow without a concomitant increase in sales. Meanwhile, inventory levels may also serve as a measurement of a company's capacity to sell future products ahead of a large retail purchasing season such as the winter holidays.

Companies must be capable of meeting potentially high demand periods such as during the 4th quarter (holidays) in order to maximize their retail sales opportunity. Therefore, retail sales may be linked with inventory levels, manufacturing activity, and GDP (High retail sales activity typically reflects a strong economy). Conversely, high manufacturing, high inventory, and low retail sales suggests that an industry is producing products at a potential loss, where the cost of paying workers and storing excess inventory may begin to exceed the revenues generated by consumer purchases. Companies may reduce manufacturing output in order to compensate for a loss of sales, which may result in lay-offs and rising unemployment. Meanwhile, retail sales that are financed through debt may reflect problems within the economy. Therefore, retail sales volume must be monitored in relation to retail debt and consumer debt driven retail sales.

### Issuance of Building Permits & Housing Markets

The issuance of building permits also correlates with future real-estate supply, and a high level of newly issued building permits serves as an indicator that new construction projects are in progress. Typically, companies begin new construction projects when their revenues are stable and they anticipate continued or growing profit levels. Construction also stimulates jobs and consumer spending. Meanwhile, the housing market may also serve as a critical metric, because declining housing prices may suggest a supply glut, which would be followed by a drop in construction and increase in construction lay-offs. Conversely, reduced housing sales may also reflect a drop in purchasing power due to other economic factors. Furthermore, declining housing prices may reduce the net worth of home-owners, which limits the capacity for home-owners to refinance their homes. Foreclosures could further increase the supply glut in the housing market as supply outpaces demand. Therefore, the housing market must be evaluated based upon both the issuance of new building permits, real-estate value, foreclosures, and sales. Declining sales suggests declining value and a recessionary cycle, whereas increasing sales may be indicative of a boom cycle.

### New Business Formation

New small-business startups represent a key economic indicator, because new businesses typically require risks on the part of both the banks and the business owners. The bank and business owner are regarded as competent parties who have properly assessed the market. Therefore, these individuals may serve as the first agents to evaluate potential profit opportunities that could drive economic growth. Therefore, rising or declining small-business development may serve as an indicator for a boom or recessionary cycle, respectively.

### New Hiring Rates & Layoffs

Hiring rates & layoffs by large corporations also represent important metrics for the health of an economy, because large corporations employ large groups of workers. Once corporations begin fresh rounds of hiring, posting thousands of job openings each quarter, one may determine that trade is increasing or expected to increase during these recruitment cycles. However, mass lay-offs may represent an indicator of declining profits or anticipated recession.

Companies that engage in lay-offs because they have closed their manufacturing or service facilities in one country in order to secure less expensive labor in another country may see an increase in profit-margins, but the workers will lose purchasing power, and consumer spending will drop in their home nation. The drop in purchasing power may subsequently reduce spending, which may further incentivize companies to outsource their labor to other countries in order to further reduce their prices. Therefore, continued job liquidation may result in long term wage suppression, falling prices, falling profits, and recessionary cycles.

## Lagging Indicators

Lagging economic indicators may be reviewed in order to determine the trends that may have precipitated growth or recession in the past.

### Gross Domestic Product

Gross Domestic Product (GDP) is regarded by many economists as the central tool by which to measure an economy's health. Rising GDP suggests a strong economy, and falling GDP suggests a weakening economy. However, GDP may be skewed based upon a central bank's quantitative easing policies and high levels of government spending.

### Income and Wages

Income and wages are important indicators for economic growth and development, because rising wages represent greater spending power for consumers and therefore more sales opportunities for manufacturers and retailers. However, due to the "stickiness of wages", this is a lagging indicator, because wages tend to change more slowly when compared with company profits, stock prices, and the cost of goods and services.

### Durable Goods Orders

Durable Goods Orders represent a critical economic indicator, which accounts for the total orders of high priced goods that provide 3 years or more of utility. Durable goods for businesses includes office equipment, manufacturing tools, heavy machinery, and construction equipment, whereas consumers may purchase cars, computers, and other high priced electronic systems. These orders tend to increase when business owners invest in their company's assets in anticipation of continued or rising demand for their goods and services. Consumers also increase their orders when they believe their jobs are stable, and they anticipate that their income will continue to grow.

### Unemployment, Underemployment & Labor Force Particip.

Unemployment rates are also a clear indicator of economic health, where healthy economies post unemployment rates of 3 - 5% at any given time. High unemployment rates suppress spending, which suppresses business profits, hiring, wages, asset acquisition, and investment, etc. However, the unemployment rate may be inaccurate, because this indicator only measures the number of unemployed individuals who have applied for jobs within the past 4-weeks. Furthermore, highly skilled workers who are unable to secure jobs within their field of specialization may choose part-time work that does not match their skill levels (Underemployment). This may skew the unemployment rate without accounting for real or lost productivity. The loss of highly skilled productivity is not measured in the unemployment rate, so underemployment rates must also be taken into account. Finally, unemployed workers who have stopped looking for work until the economy grows must also be taken into an account (Labor force participation rate). These individuals are not factored into the unemployment rate, but they must be considered when reviewing the health of an economic system.

### The Consumer Price Index (Inflation)

The Consumer Price Index represents increased costs of living such as the price of essential goods and services, medical care, transportation, clothing, etc. The total cost of these goods over time represents the rate of inflation or deflation in prices of these consumer goods. High rates of inflation may outpace the growth of consumer wages, which reduces price-setting power and participation in trade. Inflation is only a good thing when consumer wages rise accordingly, where inflation stimulates spending, investing, and general participation in the economy. Deflation may result in a drop in the cost of living, which indicates that consumers have reduced spending or that money supply has been reduced. Deflation may reduce profit margins, so companies may reduce hiring, wages, or close altogether. Therefore, the Consumer Price Index must be monitored in order to ensure that other economic indicators may be interpreted in accord with changes in market prices.

### Currency Strength

The strength of currencies fluctuate as economic productivity fluctuates, which enables currency strength to serve as an economic indicator. Strong currencies enable nations to purchase goods and services from other nations at attractive prices, because a "strong" currency is possessed of greater purchasing power when compared with a "weak" currency. For example, 1 unit of currency that is valued at a rate of 10 units of currency in another country is far "stronger" and purchases 10x more goods and services an in the home country (i.e. Exchange rate). Currencies tend to be strong when positive international sentiment toward a particular country's economic stability and productivity increases the perceived value of trading with that country. The United States's currency is regarded as one of the strongest, so it has become the world's "reserve currency", which means that nations purchase US bonds and hold their money in the form of US Treasury Notes (i.e. Dollars).

### Interest Rates

Interest Rates represent the cost of accessing credit (i.e. Loans), which are typically determined by the central bank's interest rates (i.e. Cost for commercial banks to borrow money). Lower interest rates increase the rate of lending to small-businesses (i.e. Stimulates investment). Therefore, lower interest rates may serve as a sign that the economy is weak, because this suggests that central banks prefer to encourage low-cost lending in order to stimulate a contracted economy. Low interest rates may be regarded as "easy money", where banks could risk lending too much credit to businesses. This could result in malinvestment, where excess money supply enters into the economy and high risk ventures fail. Meanwhile, the injection of money into the economy could also result in inflation, which devalues the currency.

### Corporate Profits

Corporate profits may be correlated with a rise in GDP as a consequence of increased consumer spending, but margins may also be increased as a result of outsourcing jobs to another country. This increases share-holder profits but not broader domestic economic strength. Therefore, monitoring corporate profits may be an effective means by which to determine the health and productivity of a nation's economy.

### Precious Metals

The price of Gold may also serve as an economic indicator, because precious metals are regarded as a more stable store of value than fiat currencies. Volatility within the stock market and weakening economic indicators may result in a rise in the price of Gold as investors move their assets into this more stable store of value. Meanwhile, falling Gold prices may reflect a strengthening economy as investor confidence increases and businesses raise more capital through the stock market.

#   

# Principles of Psychology

### Market Emergence

The theory and practice of human capital management requires that one develop a functional model of human behavior and market economics. This serves to inform company policies, which are designed to respond to a variety of human characteristics throughout a company and economy.

Tens of thousands of years ago, life depended upon such physical resources as food, water, and shelter, and humans first began to acquire these resources through participating in trade. All individuals specialize - That is, skills for acquiring resources vary. Therefore, some members of a civilization could hunt effectively and bring food to their community while also offering protection. Meanwhile, others were more effective at navigating the plant kingdom and scavenging for medicines to treat the sick and wounded. Still others specialized in cultivating crops and cattle, curing meats for long-term storage, building huts, stitching clothing, carrying water, and so on. Therefore, trading food and protection for access to medicine became a logical means by which to maximize both survival and quality of life. Through engaging in trade, hunters could do what they did best while simultaneously deriving benefits from producers of clothing, shelter, grain, medicine, and so on.

This naturally emerging system of mutual benefit is believed to have originated as a gift or barter economy - I provide you with my specialized benefits, and you provide me with yours. Throughout the development of these systems for trade, communities would organize into groups. First tribes, then towns, then city-states, and nations. With each increase in a civilization's size and complexity, productive groups would have also grown into ever larger "companies" of traveling companions.

However, these groups learned that trade was not a simple, fixed solution for raising their standard of living. Perhaps earlier in a civilization's development, the small group's need for food, water, and shelter was relatively uniform, and resources could be shared equitably.

Once these small tribes began growing into larger communities, the hunting class may have continued to grow. This would have produced a surplus of meat - More than the tribe could eat. Therefore, some member's contributions to the community would come to be perceived as less and less valuable, while the hunter's need for access to water, shelter, clothing, and medicine was unchanged. Small tribes may have ignored this problem, but a village of thousands of members would soon find themselves managing their scarce resources more closely.

Thus, the principles of supply and demand were born into the free market. This contributed to a growing village's challenge of balancing the value of their trades. These groups would eventually refine their trade systems through developing a universally accepted currency. This could include tokens of obsidian, copper, gold, silver, and other elements, which would represent the community's value of goods or services in trade.

### Supply and Demand

The principles of supply and demand represent fairly well-known models for describing how human needs impact the perceived value of scarce resources, which are secured within a free market (Miller, 2016).

### Psychological Mechanisms of Natural Resource Allocation

Ken Wilber's 4 Quadrant model provides a highly effective means by which to map the spectrum of human behavior. This is critical for describing the relationship between human cognition, behavior, preferences, and socio-economic transactions. The 4 Quadrant model proposes that individuals (I) grow through multiple stages of psychological development, group development (We), material / physiological development (It), and systemic development (Its) (Wilber, 2001).

### The Individual (I)

Wilber's model suggests that human beings progress through several stages of interior psychological development. The human organism progresses from generally focused upon oneself to increasingly focused upon others and the world at large. Throughout these stages of development, one may exhibit a variety of subjective perspectives, needs, drives, and resource demands.

Therefore, these psychological stages contribute to the variability in human experience (I, Interiors) and their shared social experiences (We, Interiors of groups). This, in turn, contributes to the individual's observable market behaviors (It, Individual economic agents) and their aggregate behaviors (Its, Systemic behaviors).

Dr. Jean Piaget's stages of development may provide more information on how individuals grow through the sensori-motor (pre-egoic), pre-operational (egoic), concrete operational (ethnocentric), formal operational (world centric), and post-formal operational (integrative) stages.

The sensori-motor stage may be regarded as the first stage of human development with limited awareness, which is primarily reflexive and requires an attentive caregiver to supply food, water, and shelter. The pre-operational stage of development increases the individual's self-awareness as they act upon the environment to satisfy their needs. These individuals tend to be egocentric and unaware of other people's perspectives. Next the concrete operations stage emerges as one assumes the perspectives of other beings. This enables one to act in the interests of others within their immediate family. Their reduced egocentricity has grown into ethnocentricity - Care for one's in-group.

The formal operations stage emerges during adolescence as abstract reasoning and moral values become questions of preeminent importance. These individuals may begin contemplating more expansive ethical values, which impact both their in-group and out-groups. That is, their cognition begins to embrace the world's collective of diverse perspectives. Finally, the post-formal operational stages of development (integrative stages) enable the synthesis of new information. This stage further enhances cognitive function, perspective-taking, and abstract reasoning. This stage also allows for the integration of multiple perspectives so as to recognize that all beings are connected and to be treated as one.

These individuals also organize into psychosocial groups, which are possessed of their own collective stages of development. This influences resource demands. Therefore, individuals and groups must be addressed separately as distinct economic collectives that act upon the world.

### The Group (We)

This model provides a means by which to map the relationship between individual and collective behaviors. The psychosocial stages of development are similar to those of the personal stages of development, but they unfold within the context of groups, cultures, and institutions. For example, a religious organization may grow from compassion for it's exclusive members (concrete operations / ethnocentric) to concern for all members of society (formal operations / world-centric), to the recognition that all beings are one interconnected collective agent (post-formal operations / integrative).

### The Systems (It / Its)

The subjective characteristics of individuals (I) and collectives (We) may be represented through objective, exterior observations such as brain development, age, sex, socio-economic background, etc (It / Its). Both individuals and groups take action upon these 'Exterior' quadrants through their objective behaviors. This could include engaging in trade, deploying capital, and formulating objective analyses of these activities.

### The Primary Human Drives & Economic Imperatives

These individuals and collectives also operate with subjective, "soft" needs for relationships, social status, growth, knowledge, moral values, and existential purpose (Interior quadrants) and "hard" needs such as food, water, and shelter (Exterior quadrants). Through mapping these various behavioral drives within the individual and economy, one may more effectively map the relationships between supply, demand, and human behavior (i.e. market preferences).

### Market Factor #1: Existence & Subsistence Resources

The first drive is principally concerned with securing food, water, and shelter within an environment that provides scarce access to resources. These needs are subject to contractions in resource supply, which drives the perceived value of these resources higher. Once the physiological drives have been met, the need for safety and a sense of safety becomes critical, which requires that one's newly acquired resource supply chains are secured from destruction. Individuals, organizations, and governments may satisfy this drive through storing their resources in a bank, establishing a contract that is protected by the rule of law, or training and arming themselves for self-defense, etc (Maslow & Frager, 1987).

### Market Factor #2: Relationship / Connection

Regardless of the manner in which safety and security is secured, individuals and organizations must progress toward satisfying their needs for relationship. That is, most individuals will begin to seek friendships, partnerships, and engagement with society at large in order to increase their personal security through another person. The failure to utilize social relationships as a means to an end may prevent individuals from securing access to additional resources such as education and economic productivity. That is - The formation of relationships ensures the emergence of a link to the economy, where one may exchange goods and services.

However, humans also look to experience psychosocial connection as an end unto itself. Failure to meet this need may result in psychological dysfunction, because the need for relationship is intrinsic to human health and wellbeing. Individuals and groups may secure these needs through natural rapport development or through commercial transactions to secure access to exclusive professional organizations, engaging in business transactions as an exclusive means to form social networks, purchasing prostituted sex, etc.

### Market Factor #3: Significance

Once one has established a relationship with the social collective, individuals typically develop a sense of their unique position within the social hierarchy. Therefore, the need for significance drives a tremendous amount of economic activity (Robbins, 1998). Many consumers may purchase high cost status-related luxury goods and services in order establish a sense significance. This need may also be satisfied at a low cost through simply declaring oneself a fan of a successful sports team, attending services at an exclusive religious organization, or rejecting material wealth as a symbol of one's pious spiritual development, etc.

### Market Factor #4: Knowledge/Meaning

Next, individuals develop a need for knowledge and meaning about themselves and the world. This is critical in order to ensure that one is capable of navigating their interior world of thoughts, feelings, personal philosophy, social environment, and the objective world. Those who seek to increase their sense of knowledge and meaning may simply apply their endogenous critical thinking skills, access a mentor, enroll in higher education, or learn on-the-job skills training, etc. The various ways in which individuals choose to fulfill their need to secure access to knowledge and meaning therefore impacts their behavior within the economy.

### Market Factor #5: Growth

The need for growth emerges next as individuals strive to develop their sense of self and position within their environment. This may manifest through the need to increase or grow one's material resources and access or control over food, water, and shelter. Human beings tend to feel pain when they are not in a state of personal growth, so this produces demand for goods and services that promote personal growth and development. This may also manifest through enhancing the quality and quantity of relationships, significance, and knowledge, etc.

### Market Factor #6: Higher Values & Self-Transcendence

Finally, the Higher Values and Self-Transcendence needs emerge, where the universal human values of love, compassion, truth, justice, and existential reflection become prominent. This need for higher moral values reflects the drive to transcend the limitations of reflexive and egocentric or ethnocentric behaviors. This need may drive individuals to provide a positive contribution to the world at large. This impacts the broader economy through increasing the consumption of morally virtuous products such as clean energy, recycled goods, non-tortured animals, etc. Meanwhile, this also decreases the consumption of goods and services deemed immoral and hazardous to life throughout the world (i.e. Exploited human labor, animals, toxic products, etc).

### Market Factor #7: Subjective Psychosocial States

These drives are also influenced by interior states and perceptions that range from Low Value (fearful) states to Center Value (neutral), and High Value states.

Fearful states (Low Value) are represented by the behaviors of economic contraction (i.e. Recession) and aggression (i.e. International conflict). The presence of fearful states tends to suppress the growth and development of the individual or organization. This may result in reduced high risk investments or the decision to wage war on another nation.

Neutral states (Center Value) are not highly reactive. These states are primarily characterized by reduced psychological contraction and aggression. Therefore, these states may contribute to a more objective interpretation of one's self and the world, thereby increasing strategic investment (i.e. Objective evaluation of risk vs. reward) and reducing the likelihood of war.

High Value states are represented by the subjective experience of inspiration, compassion, expansion, growth, etc. These may more strongly correlate with higher levels of risk-taking, innovation, economic growth, and economic resilience.

Therefore, individuals and groups may develop the capacity to engage with these interior states in order to maximize productivity, sound investments, and growth during any stage of economic growth or contraction. That is, while fearful organizations may choose to retreat from the market, others could focus upon inspiration, innovation, and productivity (i.e. Expanding into the market while others contract).

### Market / Organizational Behaviors at Stage #1: Egocentric

Typically, individuals who operate at the egocentric stage of development may express either healthy or pathological characteristics.

#### Positive Elements

The healthy expression of those operating at the egocentric stage of development may vary widely. Potential examples include one's interest in personal growth, development, and productivity, regardless of the behavior and activities of others. These individuals may seek to grow their value through inventing new systems, processes, or technologies, which are designed to maximize their personal wealth. This could result in spill-over benefits to their organization (through rising profits and wages) as well as to society (through rising standards of living). However, these individuals may also present with pathological characteristics (Wilber, 2000).

#### Pathological Elements

These pathological characteristics could manifest through a variety of behaviors. For example, one may strive to secure financial compensation without regard for how this could impact their peers, their organization's financial stability, or the price of goods and services for customers. The individual who exhibits excess egocentric behavior within an organization may become destructive to the company's capacity to properly conduct business both internally and with the market. Pathological egocentric behaviors may include high levels of emotional volatility or stimulating emotional volatility throughout one's team. These behaviors may appear obvious to some or all members of the organization. However, most humans tend to become complicit with an egocentric personality's dominant behavior. This may prevent leadership from rigorously applying company code of conduct policies, which perpetuates the problematic behavior.

These individuals may rise to high levels of the executive leadership team and secure excessive compensation or status. However, these individuals may not provide concomitant increases in productivity or value to the organization. Those individuals operating at an egocentric stage of development may also be emotionally calm, cool, and collected - Perhaps even charming and effusive - Climbing the ranks of an organization without contributing value (i.e. Sociopathic behavior). This behavior may be noticeable to only a small group of individuals who work most closely with this member of the organization. Meanwhile, the leadership team be unduly influenced by individual's charming sociopathic personality and overlook their raw contributions. This may contribute to the advancement of unqualified egocentric individuals into the executive team. This becomes increasingly problematic if their conduct escalates into legal compliance problems or adversely impacts other elements of company performance.

### Market / Organizational Behaviors at Stage #2: Ethnocentric

Those who have progressed to the ethnocentric stage of development may present with a variation on these healthy and pathological traits. Typically, ethnocentric behaviors serve both private interests and the interests of their department in a more balanced manner.

#### Positive Elements

Those operating at this stage of development are far more effective at contributing to a team, leading a division, and potentially leading an organization. In-fact, the vast majority of individuals within organizations tend to operate at this stage of development, and they are not tremendously problematic within the context of a diverse workforce and economy. Team members and department leaders at the ethnocentric stage of development may consider their personal contributions within the context of their department, and they may appear to be competitive with other teams within the organization - Competition that stimulates growth. Meanwhile, executives who operate at the ethnocentric stage of development may take significant measures to ensure that they contribute to the wellbeing of their organization and their customer-base (i.e. Their in group) .

The adverse consequences of operating exclusively at this stage of development are that teams may become competitive at the expense of the organization's wellbeing. The healthy expression of the ethnocentric stage of development may express itself through competitive growth. However, the pathological expression may simply strive to suppress the growth of their organizational counterparts rather than focus upon their own growth and development. For example, a sales division may not focus upon growing their own pipeline alongside another team, but they could instead cannibalize the sales pipeline of their organizational counterpart. This may result in a net loss of organizational productivity, because neither group is actively growing their market-share - They are simply competing for a shrinking pipeline.

#### Pathological Elements

The pathological expression of individuals or organizations operating at the ethnocentric stage of development may include conducting business that benefits the organization and it's members at the expense of the customer base and global environment. Here, executives may treat their organization well, but they could price gouge their customers within a monopolized market or dump toxic chemicals into the environment. Therefore, the pathological expression of the ethnocentric stage of development is problematic for long-term organizational and economic growth, because the organization and the world are cannibalized. This ultimately undermines the capacity for the organization to conduct business.

### Market / Organizational Behaviors at Stage #3: World-Centric

The world-centric stage of development must emerge in order to resolve the challenges presented by the earlier egocentric and ethnocentric stages.

#### Positive Elements

The world-centric stage of development is characterized by individuals and groups considering both their personal needs, their interdepartmental counterparts, organization, and the global market. These organizations are aware of the positive or adverse impact that their behaviors could have upon themselves and their environment. Therefore, they strive to meet the needs of all members of the planet while sustaining organizational growth.

#### Pathological Elements

This stage of development may also exhibit pathological characteristics. For example, those operating at the world-centric stage of development may fail to recognize the positive attributes of egocentric and ethnocentric behavior. They may prefer that everybody function at the world-centric stage and discourage meritocracy. These leaders may not recognize the spill-over benefits of egocentric self-interest and positive competition within their sales teams. That is, they may prefer to suppress these personality characteristics, which which could suppress the company's growth. Through flattening wages or removing hierarchical reporting structures in order to generate 'equality', these individuals may inadvertently remove the diversity of perspectives required for peak performance. Therefore, this stage of development may fail to integrate the efficiency of egocentric and ethnocentric drives, which stimulate personal, departmental, and organizational growth.

### Market / Organizational Behaviors at Stage #4: Integrative

Therefore, a still higher stage of development must be actualized within the organization, which is capable of representing each of these perspectives effectively. The integrative stage of development is more effective at recognizing the synergistic interaction of these multiple stages and drives. Executives operating at the integrative stage may learn to recognize the best means by which to harness the drives of individuals operating at multiple stages across the organization. The best method for evoking growth into these higher stages of development may include (1) education on the presence of these stages, (2) exposure to a diversity of perspectives (multi-stage and multicultural training), and (3) policies and procedures that require training on and integration of this knowledge.

## Monitoring Engagement of Human Capital

The full potential of human capital may only be realized once an organization's staff are fully engaged with their personal mission, vision, and purpose. However, Gallup has surveyed US workers and determined that only 30 - 35% of workers describe themselves as engaged with work (Gallup, 2014 - 2017). This represents insufficient personal and professional performance, which may directly impact a company's revenues and profitability.

According to Bailey et al, employee engagement was first discussed within the context of the emerging field of positive psychology. This field sought to explore the factors that drive psychological health and wellbeing rather than pathology (Bailey et al, 2015). William Kahn was regarded as one of the first individuals to describe the construct, where individuals may or may not authentically engage with their roles and reach full productive capacity. Consider a company with a work-force that is 30 - 35% engaged vs. 90%+. Higher engagement rates may result in greater productivity. Therefore, strategic psychological interventions may be leveraged throughout the work-place in order to enhance worker engagement and maximize company performance. This field of study has produced a variety of unique methods for measuring personal role engagement, work-task / job engagement, multidimensional engagement (work + organization), positive attitudinal states, engagement as employment relations practice, and self-engagement with performance. Consequently, Schaufeli and Bakker developed the Utrecht Work Engagement Scale (UWES) (Bakker, 2006).

### Utrecht Work Engagement Scale

The following 17 statements are about how you feel at work. Please read each statement carefully and decide if you ever feel this way about your job. If you have never had this feeling, cross the "0" (zero) in the space after the statement. If you have had this feeling, indicate how often you felt it by crossing the number (from 1 to 6) that best describes the frequency of this feeling.

### Sample Inventory

1. 1. At my work, I feel bursting with energy.

2. 2. I find the work that I do full of meaning and purpose.

3. 3. Time flies when I am working.

4. 4. At my job, I feel strong and vigorous.

5. 5. I am enthusiastic about my job.

6. 6. When I am working, I forget everything else around me.

7. 7. My job inspires me.

8. 8. When I get up in the morning, I feel like going to work.

9. 9. I feel happy when I am working intensely.

10. 10. I am proud of the work that I do.

11. 11. I am immersed in my work.

12. 12. I can continue working for very long periods at a time.

13. 13. To me, my job is challenging.

14. 14. I get carried away when I am working.

15. 15. At my job, I am very resilient, mentally.

16. 16. It is difficult to detach myself from my job.

17. 17. At my work, I always persevere, even when things do not go well.

### World Happiness Index

The World Happiness Index has been derived from a simple survey, where members of each nation are asked to rank their level of happiness. Their responses are integrated with national GDP, life expectancy, generosity, social support, degrees of freedom, and level corruption (Hrala, 2016). This study serves as an effective way in which to gauge the performance of a nation. The ultimate measure of psychological success is whether and to what degree one is happy, content, or fulfilled. This correlates with measures of GDP, life expectancy, generosity, social support, degrees of freedom, levels of national corruption, and others. This index presents a novel approach to recognizing the critical role of peak psychological states in national productivity.

### Fulfillment & Productivity

The Social Market Foundation published a study, which reviewed the relationship between the subjective sense of happiness and fulfillment and worker productivity in 2015 (Sgroi, 2015). According to the publication, "Happiness is now an accepted and important policy objective for governments alongside big aggregate targets such as economic growth or unemployment. However, there is surprisingly little work on the importance of happiness as an input to economic processes or measures such as productivity; usually it is considered only as an output or consequence of higher growth or income and not just an output." Therefore, the foundation conducted a series of experiments, where subjects were stimulated with either (A) a 10-minute comedy clip or (B) snacks and drinks. Next, the researchers provided the participants with a simple survey to determine whether these experiences enhanced their sense of happiness. Once the researchers had determined that these experiences produced an increase in the subjective sense of well-being, they conducted a productivity experiment. The experiment provided subjects with a single opportunity to answer a series of questions. Subjects would be compensated at a rate of 5Pounds for simply showing-up for the experiment and up to 20Pounds for one hour of work. Through answering the challenge questions correctly, subjects would be provided with larger financial rewards up to 20Pounds. The results demonstrated that individuals who received and responded positively to one of the two the happiness stimuli were 12% more productive than their counterparts. Healthcare is a particularly salient sector in which worker engagement is critical, because sustained engagement is required in order to provide life-saving treatment to patients (Kerner, Gallo, Cassara, D'Angelo, Egan, & Simmons, 2016).

Reduced staff engagement among medical and support personnel results in errors that cost lives. Therefore, interventions that enhance employee resilience and productivity may be tested in the crucible of the healthcare system. According to research published through the School of Public Health of Minnesota, "It is the motivation of human capital that makes a health-care organization come to life" and "Health-care systems will require organizations that thrive and exhibit characteristics of continuous growth . . ." Several strategies for success may include:

18. 1. Defining the employees role and purpose in achieving organizational objectives.

19. 2. Recruiting employees with passion and technical skills.

20. 3. Expressing value and appreciation to the employee.

21. 4. Implementing reward systems.

22. 5. Developing feedback mechanisms.

The Graham Lowe Group has also published research, which reviewed data from the Ontario Hospital Association's survey of 10,000 employees across 16 hospitals. The data suggests that high levels of employee engagement enhances retention, patient-centered care, patient safety, and employee self-assessments of their quality of care (Lowe, 2012). Collier et al's research supported this perspective through observing a strong positive relationship between total healthcare staff engagement and 12 safety culture dimensions (Collier et al, 2016).

### Strategic Interventions: Optimizing Psychological State

The human resources department is one of the central organizational structures that is primarily responsible for building, managing, and monitoring human capital. This department may therefore impact a large variety of the firm's cultural and behavioral modification practices through recruitment, initial training, monitoring capital inputs and outputs, and behavior modification. Researchers have suggested that empirical support exists for positive psychology interventions - Behavioral modification and incentive structures designed to enhance human wellbeing and performance. Meyers, et al designed a literature review of the available data, which has suggested that these interventions include the following:

"[1] The cultivation of positive subjective experiences.

[2] The building of positive individual traits.

[3] The building of civic virtue and positive institutions"

(Myers, 2013).

The review studied 15 high quality research publications and concluded that these interventions were generally effective for organizations. They also tended to reduce stress-related anxiety and depression. Meanwhile, Bolier, et al conducted a separate literature review, which reviewed 39 similar studies. They determined that positive psychology interventions tended to be more effective when repeated multiple times over a sustained duration.

This was particularly effective when interventions were conducted 1-on-1 with the subjects (Bolier, Haverman, Westerhof, Riper, Smit, & Bohlmeijer, 2013). Moreover, Kaplan, et al conducted a study in which 67 university staff members engaged in self-guided positive psychology interventions for two weeks (Kaplan, Bradley-Geist, Ahmad, et al., 2014). The intervention was focused upon encouraging staff to cultivate an interior sense of gratitude, which reduced the incidence of sickness-related absences. Therefore, human capital managers must ensure that they design and implement programs that are based upon validated practical psychology interventions. This may include 1-on-1 private cognitive behavioral training to evoke gracious thoughts and feelings. The benefits may also grow through group training and company policies, which incentivize this behavior both from the employer and among staff.

To further evidence the role of these practices, Linda Bolier, et al of the Department of Public Health in the Netherlands conducted a systematic review of all peer-reviewed positive psychology interventions. She designed the review to determine whether these interventions produced benefits to an individual's psychological performance (Bolier, Haverman, Westerhof, Riper, Smit, & Bohlmeijer, 2013). The inclusion criteria focused upon any psychological intervention, which was primarily designed to increase positive thoughts, feelings, and behavior within research subjects. The publication suggested that "The benefits of well-being are recorded both in cross-sectional and longitudinal research and include improved productivity at work, having more meaningful relationships and less health care uptake . . ."

Positive psychology interventions may be implemented through training staff in simple writing exercises as documented by Randy Sansone, MD of the Departments of Psychiatry and Internal Medicine at Wright State University School of Medicine (Sansone & Sansone, 2010). He observed that practical techniques designed to increase staff's subjective sense of gratitude enhanced psychological state. Comparing three groups, one group was instructed to write in a journal about experiences for which they were grateful, another group wrote about neutral life events, and a third group that wrote about negative experiences. The research demonstrated that individuals who train in journaling about positive experiences for which they are grateful become more fulfilled with their lives. Consequently, staff may be provided with weekly, monthly, and quarterly training intensives designed to identify the elements of their work-place for which they are grateful. Most individuals spend the vast majority of their waking life at work, so this practice must be implemented on the work-site in order to maximize integration with work and training compliance. This practice is critical for enhancing worker appreciation for their role, company, and team. This, in turn, may increase worker engagement and productivity.

Standardized professional development tools may also be utilized in order to promote positive psychological states, which subsequently enhance engagement. Rene Proyer, et al of the Department of Psychology at the University of Zurich in Switzerland conducted positive psychology research in which 375 adults were assigned to one of two groups (Proyer, Gander, Wellenzohn, & Ruch, 2015). The study utilized the Signature Strengths assessment, where staff are required to complete an inventory, which rated their subjective perception of 24 possible strengths and six universal virtues (Values-in-Action).

The first group was instructed to begin the inventory through subjectively rating their strengths. The second group was instructed to begin by subjectively rating their weaknesses. As anticipated, the group that worked on reviewing, rating, and classifying their strengths and virtues subsequently scored higher when evaluated for happiness. Therefore, standardized personal and professional strengths assessments may be utilized so as to shift attention toward staff member's positive characteristics. This may enhance the staff's psychological state and attention to their role within the company.

### Maximizing Engagement: Toyota's Practice of Kaizen

Once psychological state has been optimized, human capital managers may direct those increased psychological resources toward implementing new organizational efficiencies. Toyota's practice of kaizen promotes a continuous improvement of business processes through integrating Employee Feedback into the company's processes (Toyota, 2017). Typically, companies engage in conducting large scale investigations and long-term (6 - 12 month) interventions to update organizational processes. However, kaizen is designed to rapidly retrieve information and implement revised operational work-flows within days. Kaizen has been utilized in order to enhance safety, productivity, and cross-organizational staff communication.

The Toyota Production System's (TPS) public statement explains that: "TPS strives for the absolute elimination of waste, overburden and unevenness in all areas to allow members to work smoothly and efficiently. The foundations of TPS are built on standardization to ensure a safe method of operation and a consistent approach to quality. Toyota members seek to continually improve their standard processes and procedures in order to ensure maximum quality, improve efficiency and eliminate waste. This is known as kaizen and is applied to every sphere of the company's activities. Kaizen - Continuous Improvement Kaizen is the heart of the Toyota Production System."

Research published in Human Relations: Studies Toward the Integration of the Social Sciences included a randomized, peer-reviewed study of the Danish Postal Service and a Swedish regional hospital in order to study the effects of the kaizen system (Von Thiele Schwarz, Nielsen, Stenfors-Hayes, & Hasson, 2017). The Postal Service represented an organization that was familiar with but had not yet fully implemented kaizen, and the Swedish hospital represented an organization with a pre-existing kaizen system. The results suggested that implementing a kaizen system resulted in "increased integration of organizational and employee objectives" at the 12-month mark.

This also served as an effective predictor for "increased job satisfaction and decreased discomfort at 24 months".Therefore, organizations may optimize psychological state and implement kaizen in order to enhance productivity.

### Interventions: Profit Sharing

Compensation and benefits represent a critical component of psychological state and worker engagement. According to the Economic Policy Institute, US inflation adjusted wages for 1978 to 2014 has produced a wage increase of 997% for CEOs and only 10.9% for the average worker (Mishel & Davis 2015). Therefore, CEOs have been increasingly incentivized to enhance their company's productivity, but the majority workers have not been incentivized in the same manner. Consequently, there should be no surprise that worker engagement and productivity has not reached their maximum potential - They are not rewarded for doing so. Without incentives, economic agents do not tend to take action.

Dan Price, CEO of Gravity developed an innovative compensation program, where he raised staff salaries to a minimum wage of $70,000 per year. Furthermore, he reduced his own salary from 7-figures to $70,000 per year in order to fund that change (Keegan, 2017). Although the market rate for some of his staff was only $35,000 per year, he worked to reduce income inequality within his organization. Since implementing that change, the company's profits have continued to grow rapidly, staff attrition has been reduced by 19%, and the company was flooded with thousands of new applications for employment.

Similarly, Haruka Nishimatsu, President and CEO of Japan Air responded to the 2008 Great Recession through slashing his pay from 7-figures to $90,000 per year in order to avoid layoffs and preserve company morale (Petersen, 2009). Meanwhile, Anthony Robbins is one of the leading business intellectuals in the world, and he has proposed that organizations must treat their staff as well as their most loyal customers (Robbins, 2016).

Following Dan Price's model, Robbins decided to review the benefits that he offered his staff, which included competitive base compensation and a 401k among others. Through inviting each member of his staff to participate in a partial company ownership program, the value of the staff member's ownership increases each year as the value of the business grows.

Human capital managers must learn the lessons from these examples and work to ensure that talented staff are properly compensated. This may enhance worker engagement, increase productivity, reduce attrition, and attract qualified applicants.

### Google's HR Practices

Google Inc. has been regarded as one of the most innovative Information Technologies companies in the world due to their HR practices (Manjoo, 2013). Frequently ranked #1 as one of the best places to work, Google offers slightly lower financial incentives for staff when compared with it's largest competitors, but they are highly effective at attracting the best talent. Google is known for it's unique approach to the internal and quantitative analysis of HR related decisions. The company applies unique algorithms that analyze and interpret recruitment, on-boarding, decision-making, and retention strategies (i.e. HR is data driven). The company also implements a variety of non-anonymous employee surveys, where staff may provide feedback to managers, monitor the types of rewards that staff would prefer to receive (i.e. The ideal incentive), and develop additional personalized retention strategies.

The reason for their success has also been attributed to their responsiveness to their staff's underlying psychological needs / drives. The company has provided staff with access to on-site child-care, a 24/7 gourmet kitchen, and excellent health benefits, which fulfills the basic needs for food, water, shelter, and connection. Therefore, staff may bring the fullness of their lives onto Google's campuses, which reduces the tendency for individuals to disengage from work and prefer their "off hours" environment - At Google, they are integrated.

Moreover, Google provides staff with the opportunity to spend 20% of their work-time developing unique and innovative personal projects, which are not a component of the regularly scheduled work-flow. This ensures that individuals are free to explore their higher needs for knowledge, growth, and the transcendence of their standard work-flow. Through structuring periods of time for creative work, the company has developed a variety of new and unique products that have come to define the company as a leader in the information technology revolution. Through this program, Google produced Gmail and Adsense, two widely used tools that have increased consumer engagement and enhanced the company's digital foot-print.

Google has successfully attracted the best talent and served as one of the most rapidly expanding companies in the field of IT through promoting an enriching environment.

### Zappos HR Practices

Zappos is yet another company, which has been consistently ranked as one of the best places to work in the world. Dan Pontefract, of Forbes magazine, described the work-place culture as infectiously happy and socially engaging (Pontefract, 2015). He explained that "I visited Zappos' headquarters earlier this year, partaking in a walkabout at their new downtown Las Vegas facilities. As you enter the building you're inundated with "hellos." Everywhere you look, people are smiling and when your eyes intersect theirs, it's the friendliest smile you've ever received. In one corner, someone is playing a ukulele. In another, people mingle about in a conference room that is literally blinking with fun, coolness and family-like values."

The majority of organizations only provide rewards through issuing financial incentives to employees 1x per year in the form of their annual cost-of-living adjustment and a small bonus. However, Zappos has implemented an employer-sponsored and employee operated social-reward system, which allows each employee to voluntarily provide a $50 gift to another staff member 1x per month for their contributions (Glassman, 2013).

This democratized reward system provides the organization with the opportunity to repeatedly enhance it's culture without the need for intervention from the management team. The infectious employee reward system has reinforced the psychological health and wellbeing of their staff, and they have grown to provide some of the best customer service in the world.

According to Barry Glassman, a Forbes contributor, the company invested heavily in cultivating it's small customer base at the very beginning of the company's founding, and it has continued to do so throughout it's continued growth over time. Rather than investing in expensive marketing campaigns, the organization focused upon investing in it's staff, which has created an exceptional customer experience. This, in turn, has created a strong base of loyal customers and raving fans - Advocates for their products. Given that customer advocates create a much stronger organic sales and growth network than conventional marketing, this has resulted in strong growth and an exceptional brand.

### Whole Foods HR Practices

John Mackey is the CEO of Whole Foods, the largest supplier of organic foods in the world. Mackey has also developed one of the most highly rated corporate cultures, where both staff and customers are highly engaged (Rowland, 2017). Mackey's book, Conscious Capitalism described the principles by which he has chosen to operate his company, which includes a focus upon providing value to the world through healthy and sustainable goods (Mackey & Sisodia, 2014). Although many companies defer to HR and management in order to select new staff for an organization, Whole Foods emphasizes the importance of team-work and group participation in company culture (ICMR, 2006). Therefore, departments and their staff are invited to play a role in selecting applicants who they believe to be the best match through conducting group interviews. Through increasing team participation in the interview process, the risk of inserting a new mis-matched hire into a department may be reduced. The company also encourages staff to learn about the company's financial projections and the salaries for all positions across the company. Rather than regarding staff as components of an impersonal machine, the company encourages staff to learn about their organization and take ownership of their position within the firm. Moreover, the CEO's salary is capped at 14 times the average salary of their staff, which is far below the corporate salaries of the company's competitors. This was implemented in order to enhance the staff's sense of membership and equality within the organization.

The organization also provides employees with a 20% food discount as a fringe benefit, which allows staff to access high quality food at a more competitive rate when compared with other retailers. Moreover, staff who demonstrate that they are healthy through maintaining good blood-pressure, cholesterol, body-weight, and non-smoking status are further rewarded through a full 30% discount. Therefore, organizations may implement similar strategies in order to reduce illness-related absences, enhance wellbeing, and increase productivity.

This section has provided a brief review of the various methods, which may be utilized for increasing worker engagement and productivity. However, this does not represent an exhaustive review of the subject, so readers are encouraged to continue exploring additional exemplars for promoting peak performance. The following section will include a brief review of the principles of psychology as related to change management.

#   

# Stimulating Behavioral Change

## Practical Observations in Stimulating Behavioral Change

Human capital managers must review the field of psychological research and behavioral modification in order to enhance the degree to which individuals adopt new policies and adapt to organizational change. Psychological researchers have been learning about human behavior for decades, which has revealed patterns in how individuals tend to respond to requests to take action and adopt new behaviors. Through reviewing an extensive body of psychosocial behavioral research, one may develop new strategies for enhancing policy adoption, adherence, and responsiveness to requests to take action.

### The Simple Request Effect

Dr. Moriarty conducted a study in which two experimenters visited a public beach, and one person placed a towel and personal items within 5 feet of other beach-goers (Cialdini, 2006). After spending some time in the sun, one group was asked to watch their belongings while they strolled near the water, and the other group was not provided with any instructions - They simply left. Those who were provided with the request to watch the experimenter's belongings tended to respond protectively when the second experimenter, a "thief" attempted to steal the items - Some even chased the thief and questioned them. Meanwhile, the second group tended to take no action at all, allowing the items to be stolen.

This simple experiment demonstrated that through simply providing requests for specific actions and behaviors, people may be more likely to take those actions. Human capital managers must not presume that an individual will take a specific action because it would objectively appear to the the "good" or "correct" action in a given circumstance. Simple requests for action and behavior do, in-fact, influence behavior.

### Freedom to Choose

A meta-analysis of 42 studies has suggested that freedom to decline a solicitation may significantly increase compliance for the target behavior by up to 2x (Carpenter, 2013).

In one study the experimenter simply approached complete strangers who were alone in a shopping center and stated either:

23. 1. "Sorry, Madam/Sir, would you have some coins to take the bus, please?"

OR

24. 2. "Sorry, Madam/Sir, would you have some coins to take the bus, please? But you are free to accept or to refuse."

The second condition that affirmed the subject's freedom to choose significantly enhanced the rate of positive response to the request. Moreover, the research also determined that the precise phrasing did not alter this effect. Minor variations in the language suggested that the key-phrase was not as critical as the message - You are free to choose. However, these effects were most strongly observed during in-person requests, and impersonal, email requests have not been sufficiently reviewed so as to attribute a similar effect to electronic communication.

Human capital managers that are interested in implementing short-term and long-term change may utilize the freedom to choose effect through ensuring that individuals are not coerced into making decisions. This may enhance the individual's interest in agreeing to requests or adopting new policies. Final sentence removed

### Foot-In-The-Door

Human capital managers may strive to enhance compliance with new policies and procedures through leveraging surveys and other small changes prior to making large requests. Freedman and Fraser studied this effect during their experiments in which they conducted a door-to-door survey and asked residents for their consent to place a very small three inch sign on their lawns, which read "Be a Safe Driver" (Cialdini, 2006). Due to the nature of this small request, many respondents agreed, but they were not aware that they would be contacted 2-weeks later. Once the second round of door-to-door requests began, residents were asked if they were open to placing a much larger and obtrusive sign on their lawns. Those who did not receive an initial survey 2-weeks earlier accepted the billboards at a rate of 14%, but those who were previously surveyed agreed at a rate of 76%. This would appear to describe a foot-in-the-door effect, where smaller requests tended to promote consumer interest in agreeing to larger requests.

To further illustrate this effect, Freedman and Fraser conducted another experiment in which they conducted a telephone survey with a variety of housewives. Three days after the initial survey, they requested to send a group of staff to their homes in order to physically record the types of cleaning products they use in their home. Those women who responded to the first telephone survey were 2x more likely to respond to the second request.

Human capital managers who are interested in applying the foot-in-the-door effect may do so while developing and implementing new policies. Through providing surveys throughout the organization, one may secure the team member's first level of compliance: To complete a survey or another small and apparently insignificant request. Next, one may request larger and more substantial changes in company policy. This could produce a higher rate of voluntary compliance when compared with non-surveyed groups who are introduced to a large modification without any low-risk priming.

### Priming

Santana and Mortiz's study, "Because We're Partners: How Social Values and Relationship Norms Influence Consumer Payments in Pay-What-You-Want Contexts" demonstrated the manner in which consumers are influenced by their Social Value Orientations (Santana & Morwitz, 2015). Laboratory and field studies suggested that social values influenced purchasing decisions. Through meeting the needs for meaning and purpose in life, staff engagement may be maximized - Otherwise staff may seek meaning elsewhere. Therefore, human capital managers who are interested in promoting pro-social values throughout their organization may leverage the principle of priming. This describes the manner in which mere exposure to a concept or symbol may influence where individuals place their attention, their subjective preferences, and behavior.

Naomi Mandel and Eric Johnson conducted a study on individual behavior on websites, wherein they altered the background of websites when performing consumer research (Mandel & Johnson, 2002). Subjects were asked to select one of two products within a variety of categories, and the visitors who had been primed to think about money spent more time looking at price information related to each item. The priming stimulus for these subjects was the website background, which included images of pennies throughout the page. This simple priming stimulus appeared to have increased the degree to which the subjects engaged with monetary subject matter. Meanwhile, subjects that were primed with the concept of safety spent more time looking at product information related to comfort. Therefore, human capital managers may promote company values through simply integrating visual representations of meaningful values. Symbols and artwork that represent the positive fulfillment of safety, relationships, significance, knowledge/meaning, growth, higher moral values and self-transcendence throughout a company's interior, website, and branded materials may promote these values through the priming effect.

### Priming by Mere Exposure & Likingness

Human capital managers must also recognize that priming effects also evoke a sense of familiarity and likingness for a thing (Zajonc, 1968) (Kunst-Wilson & Zajonc, 1980). Robert Zajonc conducted an experiment in which Chinese characters were repeatedly exposed to non-Chinese speaking research subjects. Through varying the number of times that individuals were exposed to the foreign characters, the research demonstrated that subjects rated the familiar characters more highly than the others. That is - Once subjects were exposed to certain characters more frequently than others, they developed a sense of familiarity with the characters, which increased the degree to which they liked the characters. Therefore, forming positive relationships with staff may involve simple priming through familiarity, which stimulates likingness.

Kunst and Williams demonstrated a similar effect through exposing participants to simple visual shapes for only fractions of a second (Miller, 1976). Participants did not know that they were exposed to the shapes, because their brains did not move the visual information into conscious awareness during the brief interval of exposure. However, the participants rated the more frequently primed shapes more highly during the subsequent rating survey. Therefore, repetitious exposure to policy proposals may evoke long-term preferences for these policies, even when they do not register the information consciously.

Furthermore, organizations may strive to evoke a positive response to policy changes through ensuring that they remain connected with all members of the executive team and beyond. Through repeatedly engaging with all members of the organization with positive rapport development, members of the organization may "prime" staff to develop a sense of familiarity with and likingness of the executive team. This may enhance the degree to which the organization complies with new company policies.

### Scarcity

Worchel, Lee, and Adewol investigated this phenomenon through a simple baking experiment (Worchel, Lee, & Adewole, 1975). Subjects were asked to rate the quality of chocolate chip cookies - 10 cookies in one jar, and 2 of the same type of cookie in another. The cookies that appeared to be more scarce were rated more highly than those that were abundant. Therefore, human capital managers may leverage the principle of scarcity through ensuring that staff recognition, bonuses, and awards are only provided in limited quantities throughout the month. Rather than constantly providing positive social affirmation and social rewards, these may be provided sparingly. This is particularly critical to ensure that staff do not become desensitized to the presence of rewards. Meanwhile, the principle of scarcity must not be over utilized so as to deprive the environment of positive and pro-social behaviors. Therefore, a general principle is that positive affirmation and feedback must be provided in the quantity and frequency needed to evoke positive change.

Scarcity may also be created during negotiations for salary, business contracts, and other relationships through - quite simply - making oneself scarce. Through reducing the total number of emails, telephone calls, and in person meetings that one attends with a particular business candidate, one may enhance the degree to which one appears to be a VIP.

However, this must be perceived as the result of establishing a full pipeline of prospective alternative opportunities during the time and space between contact with prospective business - Both in reality and the mind's eye.

### Scarcity & Aversion to Loss

Daniel Kahneman's research demonstrated the manner in which consumers who secure access to a goods may not consider it's value until they are confronted with the potential for losing access (Kahneman & Tversky, 1992). Once more, the perception of scarcity enhances the consumer's perception of an item's value. Therefore, presenting consumers with items in limited supply and for a limited time may stimulate their interest in consuming those goods before they lose access to the opportunity.

The results of this research are also relevant for organizations who are recruiting talented individuals for the company. This strategy may be leveraged to enhance the attractiveness of the company's offer through offering a limited time opportunity to accept the position. This may be particularly critical when a highly talented candidate has multiple offers, and compensation or benefits are roughly comparable across all offers. Conversely, a candidate for an open position may also inform the hiring team that they have multiple offers, and their time is also limited. However, individuals in each position must have a high volume of opportunities set-up in order to minimize the psychological impact of a time-limited offer.

### Incentives to Perform

Executives and managers who are interested in changing behaviors within their organization may also incorporate performance-based bonuses and incentives. Research has demonstrated the manner in which one group of teachers received bonus payments when their students performed well on standardized tests (Harms, 2012). The other group received bonuses at the beginning of the year regardless of the performance of their students. The first group's students received higher scores. Teachers who were faced with the option of losing their bonus tended to adjust their behavior in order to keep/earn the bonus. Therefore, organizations must design incentive structures to ensure that they achieve the intended effect.

### Decision Paralysis

Sheena Iyengar's classic study on Jams demonstrated that a display with 24 varieties of Jam engaged more consumers with reviewing the product varieties (perhaps due to curiosity). However, they purchased far fewer items when compared with the display that offered less than 6 jars. The conversion rate was 3% to 30%, respectively. This may be a result of constraints upon working memory, which cannot hold more than 7 - 9 units of information simultaneously (Miller, 1956). Therefore, presenting only 3 options may serve human working memory more effectively while accelerating information processing, decision-making, and conversions. Final sentence removed.

### Generosity & Reciprocity Overrides "Likingness" Effects

Human capital managers may apply the reciprocity principle to change management practices through participating in generous behavior prior to requesting behavioral change. Dennis Regen of Cornell University conducted an art appreciation experiment in which subjects were exposed to contrasting reciprocity conditions. During a simulated art gallery environment, wherein subjects were asked to rate the quality of artwork within the building, the confederate took a break and returned with either a bottle of coke for the subject or nothing at all.

The confederate later asked the subject if they wanted to purchase some raffle tickets, and subjects who received the gift tended to purchase more tickets. Moreover, the subjects were asked to subjectively rate the degree to which they "liked" the confederate. Subjects that rated the confederate more favorably tended to purchase more tickets, just as expected. However, this "likingness" effect was generally overridden by the reciprocity effect, where subjects who received the gift of a favor responded positively to his request, regardless of whether they liked the confederate (Cialdini, 2006).

Participating in generous behavior within an organization may enhance the degree to which recipients of the gifts comply with requests. Therefore, those who are interested in changing company policies or incentivizing behavioral change may maximize their impact through providing generous tokens of appreciation, staff recognition, and other altruistic gestures. The principle of generosity and reciprocity overrides whether the individual making a request is well liked, which stimulates more uniform adoption of new behaviors.

### Compliance Requests: From 60% to 90%

Typically, most members of the population do not respond to requests to take action in a uniform, militaristic manner. Although members of the military are trained to accept orders and implement them without question, most individuals within the private sector have not been subjected to such rigorous compliance training. Therefore, requests for a change in behavior must be accompanied by a logical explanation as to the reason for the request (Cialdini, 2006).

Dr. Ellen Langer, a social psychologist of Harvard University conducted a study in which individuals asked to use a copy machine even though it was already in use.

The experiment provided subjects with a variety of requests to make copies as follows:

25. 1. "Excuse me, I have five pages. May I use the Xerox machine?"

26. 2. "Excuse me, I have five pages. May I use the Xerox machine because I am in a rush?"

27. 3. "Excuse me, I have five pages. May I use the Xerox machine because I need to make some copies?"

Although one may anticipate that the reason "I am in a rush" (a pressing rationale) would significantly outperform "I need to make some copies" (an obvious, non-urgent reason), this was not the case. The first request produced a 60% compliance rate. the second request secured a 94% compliance rate, and the third request produced a consistently high consent rate of 93%. The cause of the increase in consent appeared to be related to the presence of a rationale rather than the characteristics of the rationale. This study suggested that incorporating a simple rationale for a request may dramatically increase the success rate in securing consent. Therefore, executives who are interested in implementing positive change must ensure that they provide a rationale for making requests to modify behavior.

### Framing Effects: The Attractive vs. Unattractive

Human capital managers must recognize that new policies may not be readily accepted, because they have not been properly framed within the correct context. Companies that strive to implement change typically do so in order to resolve a problem, and the proposed change is believed to solve that problem.

Research has demonstrated that attractive objects that are positioned near unattractive objects appear to increase the consumer's preference for the former through the creation of contrast (Cialdini, 2006). Cialdini has also suggested that through providing prospective consumers with a high price option first, they will become more likely to purchase a subsequent, mid-priced option. Through creating a high price as the point of contrast, all other options appear to be more appealing than if the process were reversed. For example, a person enters into a computer store, and they are introduced to the high-end models first. Unable to pay for the high-end product, they are next introduced to a computer with a mid-level price. Conversely, a consumer who is first introduced to a low-level price will be less likely to purchase the mid-level priced product, because the contrast is inverted.

The first scenario describes the condition in which pain-of-purchase is reduced through introducing the mid-priced product. The second scenario describes the condition in which pain-of-purchase is increased through introducing the mid-priced product. Therefore, the first scenario is preferable when producers seek to increase sales flow. This has been evidenced throughout the real-estate market, where prospective home-buyers are provided with tours of overpriced and unattractive homes first, and they are next provided with access to the more reasonably priced and attractive home options.

The principles of starting with a high priced (high pain) product vs and low priced (low pain) product is also applicable to other high pain vs. low pain scenarios. Human capital managers may be interested in implementing changes that could be challenging to adopt (i.e. budget cuts, salary reductions, lay-offs, etc.). Therefore, they must frame these decisions within the context of contrasting options. For example, one could begin a presentation to the executive team through explaining that the organization is in crisis, could fail if it continues on the present path, and is in a high risk position. Therefore, choosing to invest in a new marketing strategy, budget cuts, lay-offs, or salary adjustments, although not the preferred route for survival, could be comparatively better than complete destruction of the company.

### The Negotiation of Concessions to Maximize Fulfillment

The principle of contrasting options has been further investigated by UCLA researchers during a bargaining game, which may be applicable to salary negotiations (Cialdini, 2006). Study participants were required to determine how to allocate a specific amount of money, supplied by the experimenters, between each other. If no agreement could be reached, neither participant would receive any money. The confederate was instructed to allocate nearly all of the money to themselves and to refuse to concede anything to their opponent. Next, the confederate was placed with another group of participants with the instruction to begin with a more reasonable and modest allocation to themselves but still refusing to alter the allocation. The third group was instructed to begin with an unreasonable demand and slowly concede to the moderate position from the second condition. Subjects who were subjected to the confederate's gradual concessions concluded the negotiations feeling responsible for their own success in the game, and they also felt more content with the final sum. However, these positive perceptions occurred when the subjects actually received less money when compared with the condition in which the confederate did not apply the concession strategy. That is, the subjects experienced greater psychological fulfillment during the concession process, regardless of the total sum they received.

This research is applicable to salary negotiations. One party begins with an arbitrarily high number and the other party begins with an arbitrarily low number. Concessions pave the path to an agreed-upon middle-ground.

### Presenting Multiple Options to Enhance Decision-Making

The principles of this research are also applicable for stimulating positive change through course-of-action proposals. For example, the presence of an economic contraction within the organization or the market could contribute to a state of psychological fear and apprehension. This may prevent logical decision-making. Therefore, human capital managers who are engaged in adaptive behavioral change management may apply these principles through first ensuring that multiple options are presented as solutions for a problem with one selected as a proposal (Note: Not framed as a proposal) - Merely, one of several options. Here, the first two options are provided as simple concessions, because they are regarded as the most painful and least beneficial options, but they are presented alongside the intended and proposed third option.

### Transforming the Double-Bind

This may also be leveraged in order to transform the illusion of an apparently impossible double-bind. For example, executives may receive a complaint regarding an employee who is sexually harassing staff, but the individual who is accused of harassment is also highly valuable to the productivity of the organization. To permit the behavior could risk a law-suit, and to implement corrective action could result in the loss of a highly valuable team member - An apparent double-bind. Therefore, the executive team may wonder how to proceed, and one could present three distinct options.

Typically a suite of three options is sufficient to provide individuals with the opportunity to freely choose and take ownership of the proposal.

These options include:

28. 1. Sustain the status quo (painful).

29. 2. Take an adverse action (painful).

30. 3. Take a positive and constructive action (the proposal).

For example, these options could include:

31. 1. Ignore the complaint, take no action, and risk a law-suit.

32. 2. Discourage the complainant them from making complaints and risk a law suit.

33. 3. Take confidential corrective action and engage in company-wide anti-sexual harassment training (proposal).

Through simplifying the suite of potential options into the certain pain of the (1) status quo, (2) adverse action, and (3) benefits of a proposed positive action, one may positive action upon a positive solution.

### Public Image, Self-Image, & Consistency

Human beings are more likely to comply with company policies when doing so reinforces their sense of self-image and public image. Friedman and Fraser followed-up on their lawn billboard experiment through adjusting the experimental procedure (Cialdini, 2006). The researchers simply conducted a survey in which they asked residents whether they would sign a petition that would show support for promoting environmental beauty. The survey produced a very high response rate, because the request was simple and non-controversial. Two-weeks later the researchers sent a new representative to allow a large "Drive Carefully" sign on their lawns, and nearly 50% of residents agreed (Compared with 14% during the previously discussed experiment). Due to the fact that these small, incremental requests were unrelated both in terms of subject-matter as well as the representative visiting the residents, this suggested a unique effect - Consistency of identity. According to the researchers, "Once he agrees to a request . . . he may become, in his own eyes, the kind of person who does this sort of thing . . . who takes action on things he believes in, who cooperates with good causes". Therefore, these foot-in-the-door and self-image consistency effects appear to be distinct but complementary characteristics that may influence behavior.

### Personal, 1-on-1 Declarations & Contrast

Daniel Howard conducted a related experiment in which individuals contacted prospective charitable donors via telephone and asked for consent to allow a member of the Hunger Relief Committee to visit their home and sell them cookies for a fundraiser - This produced in an 18% consent rate (Cialdini, 2006). The standard request was compared against an experimental condition in which the telephone calls began with the statement "How are you feeling this evening?", to which some replied "Good" or "Fine" \- This produced a 32% consent rate, and of those who agreed, 89% made a purchase. The third and final condition did not ask respondents about how they felt but simply stated "I hope that you feel well this evening" \- The response rate was similar to the control (low response rate).

Therefore, the most effective strategy for this organization was to ask the prospective donor how they were feeling, after which they volunteered their subjective state and formulated a personal identity (i.e. I am OK) within a social context. Once the respondent replied that they were OK, the telephone representative responded through creating a contrast (i.e. I am glad that you are feeling well. There are many people in the world who are not feeling well, and they are going without food tonight. Could we send a Hunger Relief Committee fundraiser to your home in order to sell you some cookies?). This strategy may have been more effective than the other two conditions due to the individual's need to feel consistent with their self-identified social position (Good, OK, Fine, etc.) and the characteristics that follow from such a social identity. Having already stated that one is well-off, individuals would naturally strive to remain consistent with that public declaration. This research further evidenced the mechanisms by which decision-making is influenced by consistency of social identity.

### Public Declarations & Consistency

To further demonstrate the impact of self-image consistency, researchers explored how taking actions in public influences behavior (Cialdini, 2006). Deutsch and Gerard subjected research participants to three conditions in which they were asked to subjectively evaluate the length of a given line when displayed visually.

The first group was required to formulate their estimates publicly, the second group reported their estimates privately, and the third group was not required to report their estimates. Next, each of the three groups was provided with information that challenged their estimates. Consequently, the group that reported their estimates publicly tended to adhere to their original positions, whereas the second and third groups were progressively more responsive to the new evidence. This study demonstrated that publicly stating one's position tends to stimulate adherence to a specific belief or behavior - Presumably due to the need to sustain the public image of consistency. This pattern has held true within public government settings, wherein juries tend to reach a verdict more readily when their votes are secret. Meanwhile, hung juries are more common when they are required to raise their hands for the vote.

Human capital managers may leverage the principles of internal consistency, personal 1-on-1 consistency, and public consistency through developing practices in which individuals regularly commit to complying with various company policies. This principle may be leveraged when individuals sign their Code of Conduct forms during on-boarding (internal consistency). Next, one may ask the individual to personally commit to upholding the code 1-on-1 with their team leader, and publicly. Through ensuring that individuals consistently practice making private, 1-on-1, and public affirmations of their commitment to the company's mission, vision, and policies, higher rates of compliance may be achieved.

### Voting Patterns & Internal Self-Labeling

The principle of consistency is critical, but commitment itself is not the only factor - Rather, the simple act of "labeling" an individual as one thing versus another may stimulate the corresponding behavior (Cialdini, 2006) (Bryan, Walton, Rogers, & Dweck, 2011).

The following study reviewed 133 adults and the changes in voting patterns that occurred when internal self labeling was tested. 50% of the participants were queried about their typical voting patterns, and in response, researchers informed the participants (incorrectly) that they were more likely to vote, because their voting patterns were labelled as politically active. That is - The researchers misled the voters to believe that they were likely to vote as a consequence of an implied unchanging characteristic about their personalities. However, the reality was that these participants were randomly selected to receive this labeling suggestion, while the other 50% were simply asked to describe their voting patterns, but they were not provided with any responses or labels about what their responses means about their personalities and character traits. The voters that were provided with the label produced a 15% higher turnout than the control group. The conclusion: Authority figures or social groups may label individuals, which may, in turn, influence behavior so as to stimulate the corresponding behavior. This is a form of self-fulfilling prophecy, which some have suggested is a result of the human psyche attempting to achieve self-constancy. Therefore, labeling consumers with a special status may encourage them to engage in behaviors that are attributed to that special status.

Human capital managers who are interested in implementing change must recognize that problematic behaviors may originate with improper labeling (i.e., Person "A" is an unsafe worker). Therefore, one may modify behavior through a combination of re-training and role or title re-classification. For example, the individual or group who is frequently found to engage in and propagate unsafe manufacturing practices within a production facility may be re-trained and assigned the label of Certified Safety Professional, subject to annual renewal. This may evoke the intrinsic drive to become consistent with a public identity and stimulate behavioral change at it's source - One's personal and public "label".

### More on The Principle of Commitment and Consistency

The principle of securing commitment may enhance the degree to which individuals strive to sustain internal and external consistency with their decisions. Therefore, securing a public and private commitment from an individual may enhance the degree to which they comply with related requests, because individuals prefer to appear consistent with their stated beliefs and state of being (Cialdini, 2006). This has been demonstrated by several studies, which includes research conducted by Steven J. Sherman. Sherman researched a group of residents in Bloomington, Indiana through contacting them via telephone and conducting a survey, which was designed to set the stage for engaging with the previously discussed commitment and consistency principle. Sherman asked the residents to predict how they would respond if they were asked to spend 3-hours collecting money for the American Cancer Society. Many of the respondents, presumably with the objective of appearing charitable, responded that they would contribute. Several days later, an American Cancer Society representative contacted the respondents in order to request volunteers to canvas for their fundraising campaign. The result was a 700% increase in volunteer registrations.

### Conversions & American Cancer Society

Human capital managers must also emphasize the value of every person's contribution and engagement with a proposed policy initiative. Dr. Robert Cialdini illustrated this principle through conducting research on two distinct fundraising strategies implemented by the American Cancer Society. The first conversion strategy produced a 28% conversion rate, and the second strategy produced a 50% conversion rate (Mortensen & Cialdini, 2010). The first donor conversion strategy concluded a door-to-door donation request by asking the following:

34. 1. "Would you be willing to help by giving a donation?" or

35. 2. "Would you be willing to help by giving a donation? Every penny will help".

Dr. Cialdini's research concluded that defining a simple and specific request parameter, which was easily achievable increased the likelihood of donation. Moreover, donors did not simply donate a single penny - They contributed roughly the standard amount! Therefore, companies may enhance compliance through stating that every contribution counts.

### Change Management & The Three Types of Customers

Carnegie Mellon University research has suggested that customers may be grouped into three general categories, which vary by pain threshold in response to purchasing (Carnegie Melon University, n.d.).

36. 1. Non-Conflicted purchasers (61%) (low spending pain).

37. 2. Savings-Oriented purchasers (15%) (moderate pain).

38. 3. Conflicted (24%) (Extreme spending pain).

The study suggested that the large group of 'conflicted' prospective customers rapidly reach their pain threshold during purchases. Therefore, reducing the perceived pain associated with making a purchase may increase conversions for both this and other groups, which are progressively less sensitive to purchasing pain. This principle has been applied through reframing a $15,000 car purchase as "only a $300/mo".

Meanwhile, George Loewenstein has suggested that consumers prefer to make purchases all at once rather than during multiple up-sells. Therefore, bundling multiple products into one package through a single packaged upgrade may be more effective than increasing the features incrementally (multiple pain events). Carnegie Mellon University research has also suggested that changing the phrase "A $5 fee" with "A small $5 fee" produced a 20% increase in conversions for conflicted consumers for a DVD trial program.

Therefore, those who are interested in implementing company-wide policies may also learn to apply this model to executives and their organization's membership within three classifications.

39. 1. Non-Conflicted (Open to change).

40. 2. Moderately-Conflicted (Prefer the status quo).

41. 3. Conflicted (Strongly reject change).

Companies must recognize which members of the organization respond to change in policy with openness, reluctance, or strong resistance. This may ensure that all behavioral management strategies are implemented with varying degrees of attention to each member of the organization as needed. Policy proposals may also be integrated into a single, large, bundled change program, which is framed as "a small policy adjustment", that could be implemented incrementally over a period of several months.

### Internal Locus of Control vs. External Locus of Control

Consumer researcher Fiona Lee conducted a study in which subjects were asked to read one of two reports on a company's financial performance (Lee, Peterson, & Tiedens, 2004). One report was focused upon the impact of strategic decisions that produced negative financial results. The other report was focused upon the impact of external factors such as economic conditions and competitor behavior. The study revealed that readers were more likely to regard the company described in the first report as favorable when compared with the second report. Self-awareness of errors may have suggested to the readers that the company was capable of responding to and correcting their strategies within the market (internal locus of control). Meanwhile, the second report may have suggested to readers that the company was not capable of responding to external environmental conditions (external locus of control).

Therefore, companies must produce reports regarding the status of staff development, training, and other programs, which assume responsibility for the positive results and negative results of company performance metrics. Therefore, reports that suggest limited impact of new policies must also be accompanied by proposals for modifying the processes and responding to the environment appropriately.

Placing the locus of control in the hands of the executive team ensures that the organization operates from a position of strength and responsiveness rather than as subjected to apparently uncontrollable external events.

### Sense of Urgency vs. Clear Instructions

Companies must also learn to recognize the best practices for emphasizing the need for urgent action versus clear and consistent instructions. Dr. Cialdini has suggested that developing a sense of urgency with clients must be integrated with clear instructions for taking action - Otherwise, urgency may not increase conversion rates. Research published by Howard Leventhal included an experiment in which two pamphlets were distributed to describe the dangers of tetanus. However, only one of the pamphlets included clear instructions on where to get vaccinated (Leventhal et al, 1965). The pamphlet with clear instructions produced a 25% higher rate of vaccination. Meanwhile, yet another group received a version of the pamphlet that described the dangers of tetanus with a lower sense of urgency, and no pictures. The individuals in the high urgency + instructions group responded with roughly the same level of vaccinations when compared with the low urgency + instructions group. Therefore, the instructions to take action served as the greatest factor that influenced behavior. Moreover, the individuals who received clear instructions were also more likely to retain information from the pamphlet. This may be a result of the mind's need to connect information with a path forward to convert that information into planning, decision making, and behavior. Therefore, leadership teams must provide clear instructions for taking action on proposals.

### Stages of Loyalty

Companies may also learn to leverage the principles of consumer behavior during the development of brand loyalty. Similar behaviors may comport with staff engagement and loyalty to employers. Research conducted by Zhand et al served as an exploration of the manner in which Chinese youth developed through a variety of stages of connection with a brand - In this case, the brand of a performance and entertainment star (Zhang, Liu, Zhao, Zheng, Yang, & Zhang, 2015). The study surveyed 28 participants, which asked questions such as: "Do you perceive yourself as a fan [Person A]?", "How long have you been a fan?", etc.

#### Element 1: Involvement

The researchers defined the first component of fan loyalty as Involvement, which represented the degree of emotional engagement with a particular star's brand or image. These fans independently researched information related to the star's brand, which in turn, further reinforced their emotional engagement with the brand and encouraged deeper participation with consuming the brand's products. The researchers explained that fans with a high level of involvement would work to defend the brand of their selected star. They also served as independent advocates who shared the brand's value with others.

#### Element 2: Satisfaction

The researchers defined the second component of fan loyalty as Satisfaction, which described the degree to which the fan experiences positive affective experience as a result of engaging with the brand. That is - Fans feel positive emotions while they consume the brand's products or image.

#### Element 3: Affiliation

Meanwhile, Affiliation described the relationship between a fan and the other community members who considered themselves to be mutually engaged fans.

These individuals range from Senior Fans to Junior Fans, and the former tend to have greater direct contact with the star or brand command center and may influence the experience of junior fans. Senior Fans tend to derive positive reinforcement from identifying as a more important member of the fan-base hierarchy. Therefore, they could influence the way in which junior members advanced into more senior positions. Although this social structure could serve to reinforce the brand's growth and community affinity, Junior fans could become resentful and lose interest in their group membership due to the perceived lack of access to the highly regarded privileges conferred upon the Senior members.

#### Stage 1: Inception

The inception stage represents the fan's first introduction to the brand, where they become interested in learning more about the brand and it's unique characteristics.

#### Stage 2: Upgrade

The second stage describes the movement from initial engagement into expanded social connection with the brand's affiliated community of Junior and Senior advocates. This represents a high stage of involvement, where fans become increasingly interested in advancing into the highest levels of community involvement and advocacy.

#### Stage 3: Zenith

Once individuals have progressed to at or near the maximum level of social status within the loyal affiliate group, consumers have typically satisfied their curiosity, and their engagement may begin moving into decline.

#### Stage 4: Decline

The final stage represents the movement from high levels of participation into "back and forth" or complete dissolution with the brand's community. Human capital managers must recognize that these principles may be applied to new hires who move through a variety of stages of development. Highly talented team members who are engaged with the organization during inception (interview) and upgrade (hiring) may reach a zenith (peak performance), but dissolution of engagement may occur during the final stage.

Therefore, companies that strive to enhance their staff engagement programs must ensure that individuals who reach the Zenith of their engagement are provided with continuous novel opportunities to engage, grow, and develop. The Zenith stage of development may decline due to a lack of engagement with new and unique elements of the company's mission, vision, and behavior. Therefore, the company must ensure that it is capable of stimulating engagement on a weekly, monthly, and quarterly basis in order to maximize the performance of the organization. This may be achieved through systematically focusing upon variable need fulfillment. For example, one month could be focused upon fulfilling safety needs, whereas subsequent months could be focused upon fulfilling the other needs for relationship, significance, knowledge, growth, higher values, and existential purpose, etc.

### Eternal Life & Vintage Products

Sarial-Abi et al's research has demonstrated the manner in which consumer preferences change when new wine is placed in old bottles (Sarial-Abi, Vohs, Hamilton, & Ulqinaku, 2015). Their theory suggests that consumers prefer products that are associated with thoughts of eternal life rather than reminders about their mortality. Therefore, companies must recognize the manner in which individuals strive for eternal life through developing their personal and familial legacy. This may be achieved through ensuring that executives and talented team members are featured on the company's 'Staff Alumni' website and receive physical tokens such as pins, medallions, the opportunity to etch one's name in the headquarter's bricks, and other awards that last a life-time.

### Perception of Instant Gratification = Engagement

Those who are interested in implementing new policies must strive to ensure that changes are presented as quick, simple, and rapidly implemented, with immediate benefits to the organization. MRI studies have demonstrated that the prefrontal cortex becomes activated once an individual considers waiting for a future event to occur, but the mid-brain becomes activated once one imagines instant gratification (O'Donoghue & Rabin, 2000). The more primitive part of the brain near the brain-stem is strongly connected with reflexive emotions. Priming words such as "instant" and "quick" activate this region of the brain and may predispose customers to making a purchase. Through presenting policy proposals as rapidly implemented with immediate benefits to the organization, one may enhance engagement.

### Social Categorization - In-Group & Out-Group

Companies must also recognize the manner in which in-group and out-group perceptions influence behavior. Henri Tajifel's research publication, Social Categorization and Intergorup Behavior has suggested that defining an "enemy" or an adversary against which a firm is opposed could stimulate in-group loyalty (Tajfel, Billig, Bundy, & Flament, 1971). The researcher's experiment provided subjects with the opportunity to select between two objects with which the subject had no personal relationship. For example, subjects were asked to select their preference between two painters who had irrelevant differences in their characteristics. The subjects were next separated into two groups, and the subjects began forming a natural affinity with and loyalty to the originally meaningless objects.

The subjects within each group developed a sense of personal ownership and connection with their in-group's objects, and they were averse to the objects associated with the out-group. They were next asked to provide rewards to the other members of the study, and they disproportionately rewarded members of their own in-group at the expense of the out-group. Therefore, once staff are converted into members of an exclusive social group such as their own division or company, they may tend to become advocates for their division or firm. This could stimulate word-of-mouth marketing for the company and serve to promote a strong brand (Smith, 2015).

Human capital managers may apply the in-group and out-group effect through introducing new hires as members of the company team. They could also and provide them with brand-related tokens of in-group membership with clear rivals at other organizations. Through leveraging this social categorization effect, staff members may become interested in increasing operational efficiency, marketing, sales, customer service, brand-recognition, and other performance benchmarks.

### The Endowment Effect

Companies must also learn to recognize the presence of the endowment effect, which describes the tendency for individuals to place a high value upon objects with which they are endowed (objects in their possession). This has been studied by Duke University researchers who observed that students who won free basketball tickets valued the tickets at roughly $2,411, but those who did not win the tickets only valued them at $166 (Carmon & Ariely, n.d.). Through simply being in possession of an object, the perceived value was more than 10x the subjective value of their counterparts who had not been endowed with ownership of the tickets. Daniel Kahneman also observed this effect (Kahneman, Knetsch, & Thaler, 1991).

The endowment effect must be considered prior to making offers that may be psychologically challenging for the other party to rescind in good conscience. For example, making a salary offer that is too high and retreating from that position could result in a heightened sense of loss for the other party. Even if the change is small and inconsequential to the offerer, the party who stands to lose even a small amount of ground may feel that they are losing significant value.

### Interior Codes of Conduct vs. External Punishment / Reward

Jonathan Freedman conducted an experiment where he studied the manner in which long-term behaviors could be installed in young boys. The study was designed to test the difference between compliance that is induced as a result of threat of punishment vs. an internal belief system (Cialdini, 2006). The experiment was focused upon integrating behaviors that would be sustained even during the absence of an adult observer to monitor and enforce "good" behavior with regard to playing with specific toys.

First, Freedman met with each boy in a room filled with toys, and he forbade the children from playing with an expensive toy robot. He explained that "It is wrong to play with the robot. If you play with the robot, I'll be very angry and will have to do something about it", and he left the room. Researchers observed the children through a one way mirror, and 21/21 of the children complied for several minutes of his absence. Several weeks later, a female researcher took them out of class, one-by-one, to conduct what was presented as a separate and unrelated experiment. The female researcher explained that the boys were free to play with any of the toys in the room, and 77% of the children chose to play with the robot. This was a significant drop in long-term compliance.

During the second experiment he modified the procedure, where he simply stated that "It is wrong to play with the robot". Upon leaving the room for several minutes, he once again observed that 21/21 of the boys complied with his directions. Next, the female once more took the children back into the room several weeks later and instructed them to play with any toy they chose. Astoundingly, only 33% of the boys played with the forbidden toy. The researchers concluded that this effect was a result of installing an intrinsic belief vs. an extrinsic belief. The children simply formulated their own internal relationship with the belief that playing with the toy would be principally "wrong" rather than wrong due to threat of an external punishment. Therefore, the principle of leveraging a moral codes may be effective for enhancing compliance with company policies and other objectives.

### Consistency & Removing Extrinsic Rewards (Part 1)

Dr. Michael Pallak conducted an experiment in which he sought to determine the best methods for stimulating long-term behavioral change within residents in order to conserve energy during the winter months. The researchers contacted residents who utilized natural gas to heat their homes and provided them with conservation tips. The residents agreed to implement some of these strategies, but the researchers did not observe any long-term changes in their behavior. In fact, those residents who committed to conserving their fuel did not actually implement those changes (Cialdini, 2006).

Therefore, the researchers adjusted their strategy with a new group of similar residents and provided the subjects with the same interview and tips. Next, they provided an extrinsic incentive to change their behavior through offering an award to those who saved the most energy - Their names would be published in the newspaper commending them for their work. This produced a short-term benefit, where 1-month after this procedure, the residents had saved a significant amount of energy. However, they next altered the conditions even further - The researchers sent a letter informing all participants that they would not be recognized in the newspaper.

The effect was significant. Those who received the letter began conserving even more fuel than during the first month, and the behavior was sustained throughout the winter. Their energy efficiency rose from 12.2% to 15.5%.

### Consistency & Removing Extrinsic Rewards (Part 2)

The experiment was repeated in a new group of similar home owners during the summer months, which was focused upon energy conservation of electricity by central air conditioning (Cialdini, 2006). Those residents who were provided with the opportunity to have their names published in the newspaper saved 27.8% of their energy, but once they received the letter removing the reward, they increased their energy conservation behavior by 41.6%. This demonstrated the manner in which a short-term extrinsic reward may stimulate immediate changes in behavior. Meanwhile, removing the extrinsic reward after the target behavior had been achieved resulted in the installation of an intrinsic drive, which was stronger and long-term. Therefore, organizations may learn to apply similar strategies in order to stimulate both short-term learning, skill-acquisition and long-term change. The organizational context may involve providing the reward several times until a new behavior is installed and subsequently reinforcing the behavior intermittently and in an ongoing manner. This would be the preferred strategy rather than deceptively removing a reward (Deception may be unethical and could reduce the efficacy of interventions).

### The Bystander Effect & Lack of Clear Information

Social proof and group-think are important behaviors that impact individual and group decision-making. Group-think presents risks such as failure to engage in critical thinking and loss of independent judgement. To study the effects of social-proof and group-think, Bib Latane and John Darley constructed a study in which an artificial emergency was created near a single subject vs. a group of subjects (Cialdini, 2006). The results demonstrated that when a New York college student appeared to be having an epileptic seizure, they received aid from a stranger 85% of the time when only one person was present to observe. However, when multiple people were present, the student received help only 31% of the time. A separate experiment was conducted in New York, where 75% of individuals who observed smoke emanating from beneath a door reported a leak when they noticed the problem alone. However, when this was observed by groups of 3, the number of reports dropped to 38%. Meanwhile, still another study in Toronto demonstrated that 90% of individual bystanders will respond when alone, but they would only respond 16% of the time when 2 other bystanders were coached to remain passive.

#### The Rationale

The researchers have determined that the by-stander effect appears to be largely a result of the observation of the behavior of others in lieu of a lack of clear information (Cialdini, 2006). Therefore, individuals and groups are much more likely to remain passive when there is a lack of clarity about whether a problem exists. To illustrate this, a series of four experiments in Florida demonstrated that when a traffic maintenance worker was injured, and the need for aid was clear and unambiguous, the worker received help 100% of the time. The number dropped to 90% when there was a perception that dangerous electrical wires were present, but the response rate remained high.

Therefore, when ambiguity about a need for help exists within a group, the response rate is low. This is presumably due to the belief that if something were wrong, somebody else has probably already done something about this. This belief begins to dissolve when there is only one person present to observe the problem or when the immediate need for help is clear an unambiguous. Therefore, staff must be trained to recognize the presence of group-think so as to ensure that safety risks, operational efficiencies, and new opportunities are reported and addressed rapidly.

### Social Modeling, Similarity, and Pro-social Behavior

The principles of group-think were further investigated with an emphasis upon studying ethical behavior when individuals discovered a stranger in need of help who was either similar or dissimilar to the subjects. Columbia University psychologists conducted a study in which a large number of wallets were "lost", and they each contained $2.00 in cash, $26.30 in check form, and personal contact information for the wallet's owner. Moreover, the wallet was wrapped in an envelope addressed to the owner, which contained a letter, which served as evidence that the wallet had been lost twice - Once by the original owner and once by a person who "found" the wallet and planned to mail the wallet to the owner (Cialdini, 2006).

The researchers varied the degree to which the handwriting and language of the letter resembled the individuals who were likely to "find" the wallet. Here, some versions of the wallet letter utilized broken English and identified the writer as a foreigner. Other versions were written in proper English. The researchers found that only 33% of the wallets were returned when the second finder seemed dissimilar to themselves, but the wallets were returned 70% of the time when they seemed similar in language, culture, and national origin.

This research demonstrated the dramatic impact of personal similarity and relatedness upon altruistic human behavior. These human characteristics present substantial risks for organizations that strive to remain compliant with EEOC guidelines. Discriminatory behavior appears to be a natural tendency in the majority of the populations studied, so staff must be consistently trained on these subjects.

### More Observations of Social Modeling

Phillips and Kenneth Bollen have also observed that individuals are strongly influenced by the behavior of others through reading about their activity in newspapers (Cialdini, 2006). Through studying the relationship between the publication of suicide stories in the newspaper and the rate of suicides after those publications are released. The evidence has shown that suicide rates spike strongly for 2 months when a suicide publication is released, and they remain elevated for up to 4-months afterward. This research illustrated the manner in which simple social observation of behavior may stimulate similar behavior in the observer.

Therefore, companies must work to ensure that positive behaviors are observed and appreciated throughout the organization. This may contribute to increased positive behavior within (1) the individual who is recognized as well as (2) those who observe the staff recognition event.

### Potential Benefits of Social Modeling

Cavett Robert, a sales consultant, has advised that "95% of the people are imitators and only 5% are initiators . . . people are persuaded more by the actions of others than by any proof we can offer" (Cialdini, 2006). Alan Bandura conducted research in which he explored how new behaviors may be installed and undesirable behaviors may be eliminated. Through applying the principles of social proof and group-think, Bandura's experiments utilized the populations that were regarded as most resistant to changing their behaviors - Children with dog-related phobias. Bandura achieved astounding results when he showed children video clips of numerous other children playing with dogs and having fun.

The first study required that children watch one child play with a dog in a live-setting for 20-min per day over 4-days. The results were significant, and 67% of the children were willing to climb into the pen and play with the dog when no adults were perceived to be watching. However, the effect was also present when the children watched video clips of children playing with dogs, so a live setting was not required. Furthermore, the most effective clips were those in which a large variety of children were playing with the dogs (More people = More social proof).

Companies must develop the capacity to leverage these various psychological principles in order to enhance policy implementation, compliance, and company performance. However, these principles must be implemented ethically, in compliance with state and federal regulations, and with the informed consent of all members of the organization. Therefore, the section that follows will provide the reader with a brief review of 10 psychological studies, which provide ethical considerations for conducting psychological research.

#   

# Lessons From Unethical Psychological Experiments

## Conducting Experiments

Human capital management professionals may choose to work with assessment organizations in order to conduct compliance experiments with their company. However, these experiments must be conducted ethically and with the consent of members of the organization. The objective of this review is to ensure that all psychological research is conducted ethically and so that pro-social behaviors may be designed and implemented within organizations.

The following experiments were conducted in the 20th century and later determined to be unethical, which provides an opportunity to learn how to avoid harmful and unethical experimentation. The information learned from many of these experiments may also be utilized so as to avoid the problematic elements of human behavior to instead evoke positive, pro-social behavior within individuals and organizations.

R. Y. Langham, PhD:

The American Psychological Association (APA) has enacted a Code of Conduct, the Ethical Principles of Psychologists and Code of Conduct, which governs ethics in psychological experiments (Danko, 2016). Researchers must adhere to specific guidelines, rules, and standards, ranging from disclosure to confidentiality and consent. These ethics are enforced by a Review Board that has been appointed by the APA. In the past, these standards were less stringent, which is how the ten studies listed in this below became famous. Therefore, these experiments must serve as a model for how to avoid unethical psychological experiments with individuals and groups.

### Study #1: Little Albert Experiment

The first study is known as the Little Albert Experiment, which explored classical conditioning theory, a phenomenon that occurs when two stimuli are repeatedly paired together to create a new learned human or animal response. In other words, it involves using the process of association to teach a new behavior. Classical conditioning consists of three distinct stages: pre-conditioning, conditioning, and post-conditioning. It is commonly associated with Dr. Ivan Pavlov, a Russian physiologist and physician, who explored classical conditioning through his "dog and bell" experiment. Here, Dr. Pavlov conditioned a dog to salivate every time he rang a bell.

In 1920, Dr. John B. Watson, American psychologist, founder of behaviorism and psychology professor at John Hopkins University, conducted the Little Albert Experiment. The goal was to "condition" a person to elicit a certain reaction towards a previously neutral sound or object. Dr. Watson wanted to extend the classical conditioning theory from a dog that salivates when a bell is rung to human beings, so he tested this principle on Albert B., a 9-month-old baby. Albert B. did not appear to have a fear of rats prior to the experiment.

First, Dr. Watson placed a small white rat on the table directly in front of Albert B. He did not react. Next, Dr. Watson started combining the presence of the white rat with a loud "bang" noise. Eventually, Albert B. would cry every time a loud "bang" noise was combined with the sight of the rat. It eventually got to the point where he would cry at the mere presence of the rat, even without the loud "bang" noise. By that time, Albert B. was fully conditioned.

Over time and with the repeated "bangs" of the hammer hitting the metal, Albert B. became afraid of the white rat. Ironically, the fear was not limited to white rats; it extended to all small, furry animals. This experiment would not happen in current society because it is considered unethical to inflict harm upon a research subject. Moreover, Dr. Watson did not desensitize Albert B. to the phobias he acquired as a result of the study. Truth-be-told, Dr. Watson had planned to "de-condition" Albert B. to the stimulus, thus reducing or eliminating the phobias and proving that conditioned fears could be removed, however, Albert B. was removed from the study before that could happen.

As a result, Dr. Watson created fear within a child, who was "fearless" prior to the study. There is also some confusion as to whether the experiment was conducted with full knowledge and consent of Albert B.'s mother. The study is considered unethical by today's standards because Dr. Watson caused psychological trauma in an innocent child and potentially without proper consent. Albert B. carried the phobias with him until he died from an unrelated medical condition at age 6.

This study revealed that pairing two stimuli together may result in an association of pleasure or pain with nearly any experience. Therefore, human capital managers must ensure that employees are provided with a safe work environment in which they may experience the positive opportunities for connection, significance, cognitive development, personal growth, higher moral values, and existential meaning/purpose for their lives. Through providing a positive working environment that enriches the individual's experience, employees may awaken each morning excited and engaged to go to work. Conversely, failing to cultivate an enriching environment naturally results in a deprivation of positive experiences and a surplus of painful experiences.

Through depriving individuals of the opportunity to fulfill these needs, members of the organization will associate pain with their employer. The result will be a loss in productivity as a result of reduced engagement and increased aversion - More sick days will be utilized, and attrition will remain high. Therefore, leadership must consistently work to ensure that their organization's environment is positive and enriching for employees in order to maximize their engagement and productivity.

### Study #2: The Bystander Effect

Another experiment that was once accepted, but is now considered unethical is The Bystander Effect, which was reviewed in a previous section on behavioral psychology. According to The Bystander Effect, the more people, who are present during a crime, the less likely they will help the person in distress. More specifically, witnesses/observers are more likely to render aid when there are either no or very few witnesses around. Likewise, when people are part of a large crowd, they no longer feel the need to take responsibility for the situation.

In the late 1960s, Dr. John Darley and Dr. Bibb Latané, psychologists, became fascinated by crime witnesses, who refused to take action. The pair was extremely interested in the murder of 28-year-old Catherine "Kitty" Genovese, who was killed on her way home from work. As she approached the entrance of her apartment, a man by the name of Winston Moseley, stabbed her to death. Approximately 38 people (bystanders) heard Kitty's cries, but no one tried to help her. In fact, it took 30 minutes from the first attack to the first 911 call. So, although there were many witnesses, her death still occurred.

Intrigued by the lack of assistance offered to Kitty, Dr. Darley and Dr. Latané, psychology professors at Columbia University, conducted a study on witness reactions. The study involved giving participants surveys and leaving each one in a room alone to complete them. After a few minutes, non-toxic smoke entered each room, where the participants were filling out the surveys. Results suggested that out of a group of participants, only one quickly reported the smoke - even though all of the participants experienced the smoke at the same time. In other words, participants were more likely to notify Dr. Darley and Dr. Latané of the smoke when they thought no one else noticed it, than when others commented on the smoke.

Dr. Darley and Dr. Latané found that there are two factors that contribute to the bystander effect: a distribution of responsibility and the desire to behave in socially correct ways. A distribution of responsibility refers to the belief that when others are around, there is no pressure to take action, since the need to take action falls on everyone in the crowd. In the case of Kitty, witnesses/observers believed that they didn't need to stop the man from attacking her because there were other people around who were seeing and hearing the same thing. Those witnesses/observers believed that someone else would call the police or render aid.

The second factor is the desire to behave in socially correct ways. This refers to the belief that when other witnesses fail to respond, it is ok for you not respond either, because obviously a response is not appropriate or warranted. As a result of The Bystander Effect study, Dr. Darley and Dr. Latané found that onlookers/witnesses/observers are less likely to intervene in a situation, if the factors surrounding it are vague. In Kitty's case, most of the witnesses claimed that they did not intervene because they assumed she was having a "lover's spat" with a companion - they did not, however, realize that a murderous crime was occurring.

It is important to note that the details of a situation may impact if or when others may react to it. For instance, during a crisis, circumstances tend to be unclear, distorted, confusing, and/or chaotic. Witnesses may not fully understand the magnitude of what is really happening at the moment. Therefore, it is not uncommon for people to look to others to see if, when, and/or how they should respond to the situation. More specifically, it's not uncommon for people to look to others to see what the appropriate behavior is for a situation.

In other words, when people look at the crowd and they are not responding to what is happening, then, they assume it is ok for them to not respond as well. It is important to note that some witnesses refuse to come forward out of fear - fear that the perpetrator will later target them. The concern for one's own welfare (over that of others) is a human behavior. People are selfish beings in general, so it is natural for them to place their lives and the lives of loved ones over the lives of others, especially strangers. This accounts for why some people do not render aid or come forward after witnessing a crime.

This study is considered unethical by today's standards because it placed participants at-risk of psychological harm. Dr. Darley and Dr. Latané made the participants believe that they were being "gassed," when in actuality the smoke was harmless. In addition, Dr. Darley and Dr. Latané instructed participants to converse with each other (in a discussion group format) from separate rooms. The participants were given headphones and microphones to hear and speak to each other. However, they could not see each other physically. The participants were told that the study was on their college lives (i.e. the things they were experiencing). Each participant was given a couple of minutes to voice his or her experiences. While speaking, the participant's microphone was active, but when he or she was not speaking, it was turned off. They were unaware that the voices they were "hearing" in their headphones were pre-recorded - not live.

Dr. Darley and Dr. Latané "tricked" the participants by playing a recording of someone, who appeared to be having a medical emergency down the hall. The person "having the medical emergency" was actually a paid actor pretending to have a seizure. The study was unethical because Dr. Darley and Dr. Latané lied and deceived the participants. They did not practice full disclosure with them. As a result, the participants weren't able to legally and ethically consent to the study, because, truthfully, they did not know its purpose.

This study, as with others, further evidenced the importance of ensuring that individuals are provided with repeated safety training in order to avoid the risks of the bystander effect. Through providing frequent training on how to respond to emergencies and overcome the bystander effect, organizations may reduce the incidence of workplace injuries and deaths.

### Study #3: Asch Conformity Experiments

The third experiment, now deemed unethical, but once accepted is the Asch Conformity Experiment. The goal of this study was to determine if peer (social) pressure (from a majority group) could influence others to follow suit, and if so to what extent. In 1951, Dr. Solomon Asch, a Polish Gestalt-based psychologist, Swarthmore College psychology professor, and social psychology founder explored the phenomenon of conformity (obedience) by placing a participant in a group and instructing each group member to match line lengths. Each participant was instructed to select the three lines that were closest in length to the reference line and announce it to the group (Perrin & Spencer, 1980). Dr. Asch explained to each participant that he was investigating his or her eye sight, which in reality was not the case. The participant did not know, however, that the group members were actually actors, who were instructed to provide the correct answer twice, then, provide the exact same incorrect answer the third time. The purpose of the study was to see if the participant would conform (follow) others and provide the wrong answer the third time, because the group did, or if he or she would continue to provide the correct answer, despite the others.

Dr. Asch believed that if the participant gave the incorrect answer, it could be assumed that it was due to peer (group) pressure. Out of the 50 white male participants (college students) tested, 37 of them conformed. In other words, they provided the same wrong answer as the group after hearing their answers. The 37 participants conformed and agreed with the incorrect answer even though there was sound evidence to the contrary (Perrin & Spencer, 1980).

When the participants were asked why they conformed, most responded that they knew the answer was wrong, but that they followed the group (conformed) because they were afraid that group members would criticize them and/or bully them into complying (Back, Bogdonoff, Shaw & Klein, 1963). Ironically, a few of the participants actually believed the incorrect answer was right. Results suggest that people tend to conform for two important reasons: (1) they want to "fit in" with the group, which is referred to as normative influence and/or (2) they feel that the group "knows more" than themselves, which is referred to as informational influence (Back, Bogdonoff, Shaw & Klein, 1963). In the latter case, this type of mentality harkens back to self-esteem issues. These individuals do not feel as "smart" or "capable" as the others, so they conform to the group.

This experiment is considered unethical by today's standards because deception was involved. More specifically, Dr. Asch deceived participants by not obtaining their informed consent before the experiment began. He was not truthful with the participants, so they did not know the real reason for the study (Perrin & Spencer, 1980). Dr. Asch also deceived the participants by not telling them that the group members were paid actors. Moreover, the sample itself was considered biased, because all of the participants were male - no females participated in the study. In addition, they were also all from the same age group, race, and college. Therefore, the study lacked validity, which means the results could not be generalized to other populations, races, ages, or even genders.

Furthermore, participants were at-risk of experiencing psychological harm due to the study. More specifically, they were not protected from psychological stress, stemming from disagreeing with the group. Participants reported feeling extremely emotional during and after the experiment. In addition, medical professionals found that they experienced a high level of autonomic arousal from the study. The increased arousal indicates that the participants felt conflicted when it came to conforming to the group or voicing a different opinion (dissent) (Back, Bogdonoff, Shaw & Klein, 1963). Therefore, because of the errors, the Asch Conformity Study could not be considered ethical today.

Human capital managers must recognize that group-think is a phenomenon that may infiltrate nearly any social environment, which includes executive teams, board rooms, directors, and general staff. Therefore, establishing clear and consistent company policies are critical for ensuring that group-think does not result in decision-making that violates federal and state regulations. The presence of group-think within executive teams and boards of directors is particularly critical to review, because high level decisions present immediate systemic and criminal liabilities to the organization. For example, a culture that accepts sexual harassment or racial discrimination may perpetuate itself, because group behavior naturally coerces other members to practice the same conduct. Consequently, entire organizations may engage in unethical and illegal business practices. The HR department must be particularly attentive to these patterns, because this role is responsible for monitoring company behavior and advising on how to design and implement company policies that comply with regulations.

### Study #4: Learned Helplessness Study

The fourth study that would be deemed unethical in today's world is the Learned Helplessness Study. In the mid-60s, Dr. Martin Seligman, an American psychologist, educator, and author of popular self-help books, conducted a study on the relationship between the mistreatment of animals and "learned helplessness." The purpose of the study was to explore classical conditioning in animals in an effort to better understand this phenomenon in people (Nemade, Reiss & Dombeck, 2007).

More specifically, Dr. Seligman wanted to observe "helplessness" in dogs that had been classically conditioned through electric shock (Nemade, Reiss & Dombeck, 2007). The animals were shocked each time a bell was rung. After experiencing the bell and shock repeatedly over time, the dogs began to react to the shock, even before it happened. In other words, immediately after the dogs heard the bell, they responded as if they had been shocked, when they hadn't been. Next, Dr. Seligman placed each dog into a large crate (split down the middle by a low fence). Each dog had enough space to peer and jump over the fence, if need be. The floor, on one side of the split, was electrically wired, while the other side of the floor was not. The dogs were placed on the electrical side and administered a slight shock. Dr. Seligman expected the dogs to jump over the non-electrical side of the fence when they were shocked. Instead, the dogs did nothing. They simply lay down, unaffected.

According to Dr. Seligman, the non-reaction was "learned helplessness" (Nemade, Reiss & Dombeck, 2007). The dogs had learned from the first part of the experiment that they were going to be shocked regardless of what they did, so they simply gave up in the second part of the experiment. This was learned behavior. The same concept applies to people. For example, when people are continuously oppressed, belittled, and/or "held back" over long periods of time, they eventually give up and quit trying.

This can even occur with those who suffer from a health condition like depression. Family members and friends can reinforce depression symptoms in some depressed individuals, by "coddling" them, making exceptions for them, and excusing their negative thinking patterns and behaviors (Nemade, Reiss & Dombeck, 2007). Therefore, according to Dr. Seligman, these individuals learn to be "helpless."

More specifically, these depressed people learn from others that they have no control over their lives, situations, or even themselves; therefore, anything they do is pointless. They quit trying to get better. Dr. Seligman also found that depressed individuals tend to have a pessimistic outlook on life (Nemade, Reiss & Dombeck, 2007). In other words, they tend to have a negative mentality when it comes to stressful and challenging events more so than non-depressed individuals who tend to be happier and more optimistic in general. That is why depressed individuals are more prone to "learned helplessness."

This study is deemed unethical, primarily because of its treatment of animals, specifically dogs. Dr. Seligman tested the dogs to see how they responded to pain. However, it did permanent, irreparable damage to the dogs he tested (Nemade, Reiss & Dombeck, 2007). The experiment created a dysfunctional behavior in the dogs that did not exist prior to the study. Moreover, following the experiment, the dogs exhibited behaviors consistent with abuse and neglect, which constitutes psychological harm. Because of this study and several like it, the APA included a section within its Code of Conduct that prevented the abuse and mistreatment of participants (APA, 2016a).

Originally, the mandate referred only to human beings, but this now also includes animals. According to the APA, "the acquisition, care, housing, use, and disposition of non-human animals in research must be in compliance with applicable federal, state, and local, laws and regulations, institutional policies, and with international conventions to which the United States is a party" (Behnke, 2004b). It is for this reason that this study is considered unethical by today's standards.

Human capital managers must consistently monitor the effects of learned helplessness within their organization. Here, executives, directors, and managers must be trained in pro-social behavior, staff-recognition, and environmental enrichment so as to stimulate productive work with their teams. Training is critical, because human behavior may naturally deviate away from positive and enriching behaviors toward reactive emotional patterns that disrupt the fulfillment of staff needs and drives. For example, one may inadvertently withdraw rewards when good behavior is present (i.e. exemplary professionalism, timeliness, progress on projects, etc) through simply failing to verbally appreciate their team member's excellent work. Failure to acknowledge this behavior consistently results in the extinction of the good behavior, and the only characteristics that remain may be problematic behaviors. Thereafter, the employee may begin to resemble a "problem employee". However, they have simply been conditioned by their environment through lack of reward and recognition for their positive characteristics.

Conversely, others may inadvertently provide punishments to their staff when they are demonstrating positive behavior through expressing frustration about other characteristics of the person's work or personality. Through simultaneously failing to provide a reward and delivering a painful stimulus (expressing frustration) while the individual is exhibiting commendable behavior, the positive behaviors are suppressed long-term. Executives and members of the leadership team or general staff who consistently engage in this inadvertent reward-inhibition and punishment delivery create a hostile environment, and staff engagement drops. This is a consequence of learned helplessness, and this problem must be resolved within nearly every institution.

The solution is to provide training to executives, leadership, and the general staff population in the best practices for consistently providing rewards (positive affirmation) for good behavior the instant the behavior is observed.

### Study #5: Blue-Eyed vs. Brown-Eyed Study

The fifth study that is considered unethical is the Blue-Eyed vs. Brown-Eyed Study. Researcher Jane Elliott was not technically a psychologist, but in 1968 she developed one of the most controversial experiments in the world (The Huffington Post, 2016). She accomplished this task by dividing her students into two groups: a blue-eyed group and a brown-eyed group. The goal of the experiment was to provide her students with a life-altering "hands-on" discrimination-based experience.

Once the class was divided into the two groups, Ms. Elliot cited fake scientific research results claiming that one group was superior to the other. As a result, throughout the day, the "superior" group was treated better than the "inferior" group. Ms. Elliot found that over the course of the day the "superior" group became crueler, bolder, and "less tolerant" towards the students they deemed "less than" themselves. The "inferior" students became more insecure and less outgoing as a result of the harsh treatment of the "superior" group (The Huffington Post, 2015). The two groups then switched places with the previous "inferior" group becoming the "superior" group and vice versa. This time the roles were reversed and the now "superior" group became crueler, bolder and "less tolerant" towards the "inferior" group, while the now "inferior" group became more timid and less secure. Ms. Elliot made the groups switch places, so they could understand how it felt to be on the "shorter end the stick," so to speak, and experience discrimination. The aim was to teach the importance of treating everyone the same, regardless of physical differences. However, Ms. Elliott received horrible backlash because of the experiment (The Huffington Post, 2015).

She conducted the experiment twice - once in 1969 and once in 1970. It is because of this backlash that this study would never be reproduced. It is considered unethical because students, and more specifically, their parents, were deceived by Ms. Elliott. She did not explain the real purpose of the experiment to the children and their families. She also did not obtain consent from the parents. Some of the parents reported that their children suffered psychological damage from the lack of disclosure (The Huffington Post, 2015). In addition, these parents stated that their children began to take on the persona of the "superior" or the "inferior" classes after the experiment. Moreover, according to the parents their children began to notice "differences" in others that they did not notice prior to the experiment.

According to the APA Code of Conduct, researchers must obtain consent from the parents of underage participants prior to the beginning of the study (Behnke, 2004a). In addition researchers must disclose to participants and their parents (if under age) the true nature of the study (Behnke, 2004b). Ms. Elliot did neither. Therefore, this experiment is regarded as unethical by today's standards.

The results of this research reveal the importance of preventing systematic discrimination within the work-place, both for EEOC compliance as well as for promoting the growth and development of all members of the organization. This may be achieved through training programs, which survey staff to identify potentially the pro-social behaviors that are already present within the company as well as the problematic discriminatory behaviors. Next, companies may systematically reward pro-social behavior and remove rewards for discriminatory behaviors.

### Study #6: Robbers Cave Experiment

The sixth study considered unethical is the Robbers Cave Experiment. In 1954, Muzafer Sherif, a social psychologist, investigated group dynamics when faced with conflict (McLeod, 2008). This experimental study focused on positive and negative inter-group attitudes and behaviors. It consisted of two groups of white, middle-class, pre-teen boys from two-parent Protestant families. The study took place at Robber's Cave State Park in Oklahoma. Although the boys were from the same area, in general, they did not know one another prior to the study. The boys were randomly assigned to one of the groups, which were picked up by a bus driver on different days and transported to the Boy Scouts of America camp.

During this first phase the two groups were kept separate and unaware of the other's existence. Because of the seclusion and interactions with group members only, the boys from each group bonded with their team. Within a week the boys had established their own societal guidelines (i.e. group norms, cultures, and even interests) and participated in mutually-pleasurable activities like swimming, hiking, and sports. The two group names were The Eagles and The Rattlers.

The second phase was the Competition Stage in which Dr. Sherif deliberately caused friction amongst the groups. This lasted between 4 and 6 days. During this phase the intention was for the two groups to compete with one another in challenging and overwhelming environments. Counselors introduced the boys to a number of competitive activities (i.e. tug-a-war, kickball, baseball, soccer, etc.). The group with the highest accumulated score received the trophy. Individual prizes were also awarded to members of the winning group (i.e. medals, multi-bladed pocket knives, etc.). No prizes were awarded to the losing team.

One group, The Rattlers, really wanted to win and believed full-heartedly that they would win. To ensure victory they practiced and encouraged the members to do their best. They spent most of the day talking about the competitions and making improvements on the ball field. They even placed a "Rattler" flag on the ground to mark their territory and made disparaging remarks about what they would do to The Eagles if they messed with their flag. During phase three, Dr. Sherif devised situations in which one group experienced more advantages than the other (Sherif, 1958). For example, one group was late to a picnic, so when they arrived the other group had eaten all of the food.

At first, the prejudice was expressed solely through verbal taunts like name-calling and belittlement. However, as the competition advanced, the verbal taunts turned into physical acts like the burning of the group flag or the ransacking of a group's cabin (i.e. theft and overturned beds). The two groups became so hostile and aggressive towards each other that the "counselors" had to physically separate them - for their own safety. After a two-day "cooling off" period, the boys were brought back together again and instructed to write down key characteristics of the two groups.

They tended to characterize their own in-group squabbles in mild or favorable terms, while characterizing the other group in more hostile, negative terms. Results indicated that the discord between the two groups triggered prejudicial attitudes and discriminatory behaviors (McLeod, 2008). Lastly, during phase four, Dr. Sherif created a water shortage that forced the two groups to work together to accomplish a common goal. Over time, the two groups learned how to work together peacefully. In fact, after a few more "common goal activities" the boys, regardless of their group, became friendly and exclusive. Results suggested that group conflict, negative prejudices, discrimination, and unfair stereotypes occur as a result of competition, between groups when limited resources are involved, but they could be repaired when working toward a common objective (McLeod, 2008). Although this experiment seemed harmless and simple, it would be considered immoral today because Dr. Sherif did not acquire the consent of the boys and their families. He also did not practice full disclosure with the boys and their families, so they were unaware of the true nature and purpose of the study. The boys did not know they were participating in a psychological experiment (McLeod, 2008).

Moreover, the situations and competitions were fake and not likely to happen in the "real world." For instance, two groups of randomly selected white boys from middle-class, two-parent families are hardly the same as one-parent, poor Hispanic boys, who engage in gang activities. Therefore, the results could not be generalized to other populations and may be subject to variability in result (sample bias) (McLeod, 2008). This study is considered unethical because its participants were at-risk for psychological and physical harm.

Human capital managers must ensure that developing competitive teams within an organization remains positive and supportive for all members. Therefore, any verbally aggressive behavior such as taunting - Even in jest - Must not be rewarded. Conversely, pro-social behavior must be encouraged. This includes behavior that rewards positive sportsman-like conduct - That all members are expected to play at their best to bring out the best in each respective team.

### Study #7: The Monster Study

The seventh study deemed unethical by today's standards is The Monster Study. In 1939, Dr. Wendell Johnson and his colleagues investigated the origin of stuttering by attempting to see if orphans could be turned into "stutterers" (PsyBlog, 2016). The researches believed that "stuttering" began in the parent's ear - not the child's mouth and that even well-meaning parents who truly believed that they were helping their child avoid stuttering problems, unwittingly contributed to the problem (PsyBlog, 2016). The experiment took place at the University of Iowa and consisted of 24 young orphans.

The participants were divided into two teams of 12, where 12 participants were actual "stutterers" and 12 were not. During the course of the study 12 participants (the labeled "non-stutterers") experienced positive speech therapy and praise (Group A), while the other half (the labeled "stutterers") experienced negative speech therapy and criticism (Group B). Group B was continuously told by teachers that they were "stutterers." In addition, the teachers encouraged Group B orphans to refrain from repeating words when speaking. It is important to note that teachers were told that all 22 students were "stutterers," when in actuality on half of them were.

Researchers found that out of the 11 orphans in Group A ("non-stuttering"), ten of them did not study following the experiment. Only one orphan in Group A had speech problems after the experiment. Of the 11 orphans in Group B ("stuttering"), who stuttered before the study, the stuttering worsened in three of them. Ultimately, no one became "stutterers" after the study who weren't already "stutterers". However, several of the orphans in Group B (who received criticism from the teachers) developed permanent and long-lasting self-esteem and self-confidence speaking issues following the experiment.

This study is considered unethical because the orphans were never told that they were participants in a psychological experiment until a newspaper exposed it - 6 decades later. In addition, both the teachers and the administrators were deceived as to the true purpose of the study (PsyBlog, 2016), and some of the children experienced psychological harm as a result of the study. The results of The Monster Study were never published, partly because some feared that the study resembled Nazi experiments conducted on Jewish people during World War II, and partly because of the consent and disclosure issues associated with it. There was also some concern that the researchers targeted orphan children who were institutionalized and easily available (PsyBlog, 2016). Dr. Johnson was deemed a corrupt psychologist and was unceremoniously removed from The Wendell Johnson Speech and Hearing Clinic.

Human capital managers must ensure that all members of the organization are aware of and familiar with the potentially damaging effect that negative comments may created both for the individual and throughout the organization. Providing criticism and negative feedback to an individual is a form of punishment and does not tend to produce new behaviors. Rather, providing rewards for positive behavior tends to produce an increase in the frequency of that behavior.

### Study #8: The Stanford Prison Experiment

The eighth and probably most notorious psychological experiment was The Stanford Prison Experiment. In 1971, Dr. Philip Zimbardo conducted the now infamous prison experiment at Stanford University, which explored both group behaviors and the significance of roles. The goal of the experiment was to explore the theory that abusive behavior occurs in prison settings because of inborn personality traits in both the prisoners and the guards (Stanford Prison Experiment, 2016). The study was supposed to last 2 weeks but ended early due to the significant psychological risks that emerged.

Dr. Zimbardo and his colleagues selected 24 white middle-class male college students, who were considered psychologically and physically healthy and had no criminal backgrounds. The young men were told that they would participate in a psychological experiment dealing with "prison life" and would receive a pay of $20.00 per day for their participation. Twelve of the men were labeled "prisoners" (Group A) and twelve were labeled "prison guards" (Group B). The Stanford psychology department basement served as a "makeshift prison."

The researchers strived to create a realistic experience for the prisoners, so they hired fake cops to "arrest" the participants at their homes (Stanford Prison Experiment, 2016). Both Group A and B were given a basic introduction on "prison life" before the study. Some of the topics discussed were: being searched and being assigned an unflattering prison uniform. Group B (the prison guards) were instructed to refrain from being violent or too aggressive with Group A (the prisoners). However, Group B was told to maintain control of the prison.

On the first day of the study nothing happened, but on the second day Group A (the prisoners) ignored the guards and barricaded themselves in their cells. Group B (the prison guards) were shocked by this blatant disrespect so they decided to escalate their use of force. Group B began separating the "good" prisoners from the "bad" ones. Next, they began to assign punishments (i.e. solitary confinement, push-ups, psychological torture, and public humiliation) to the prisoners that "misbehaved" or disrespected them. Dr. Zimbardo was aware of the psychologically damaging conditions, but he allowed the experiment to continue (Stanford Prison Experiment, 2016).

According to Dr. Zimbardo, within a few days, Group B (the prison guards) became cruel and sadistic and Group A (the prisoners) became stressed, despondent, and depressed. Two participants from Group A eventually dropped out of the experiment because it was too distressing for them. Out of the two participants that dropped out, one later went on to be a psychologist and psychological consultant for the prison industry. Others started to act "crazy" a day or two after the beginning of the experiment. Although the experiment was supposed to last for two weeks, it ended after five days. This was in response to Dr. Christina Maslach, a fellow psychologist and Dr. Zimbardo's fiance, stopped by and witnessed the terrible conditions (Stanford Prison Experiment, 2016).

Dr. Zimbardo believed that Group B (the prison guards) behaved inappropriately primarily due to their role of power and authority. As a result of Group B's dominance and high place on the hierarchy, Group A began to accept their roles as "inferior" human beings. In other words, they stopped fighting back and accepted their fate. However, selection bias played a role in the outcome. The participants were recruited using specific wording designed to attract a certain type of participant. For instance, when Dr. Zimbardo advertised for participants using the wording "psychological study," more mild-mannered, emphatic people volunteered, but when he used wording like "prison study," he received more aggressive and dominant types of volunteers (Stanford Prison Experiment, 2016). He then split the participants up into two groups, depending on their personality types. Lastly, Dr. Zimbardo discouraged, and in some cases, prevented participants from leaving the study, despite telling them they could do so at any time (Stanford Prison Experiment, 2016).

Some of the participants experienced permanent mental illnesses, psychological distress, and health conditions (i.e. high blood pressure, etc.) (Stanford Prison Experiment, 2016). In addition, no protocols were put in place to control the situation before it got out of hand. There were no "checks and balances" to make sure Group A was treated fairly and humanly (Stanford Prison Experiment, 2016). Moreover, the study experienced research bias in which Dr. Zimbardo was unable to separate himself from the study to remain objective and neutral. He kept pushing the limits to see what would happen (Stanford Prison Experiment, 2016).

Furthermore, Dr. Zimbardo did not debrief with the participants until many years later and by that time the damage was done (Stanford Prison Experiment, 2016). Now, the APA Code of Conduct requires that participants be evaluated by medical professionals, ethics committees, and review boards prior to starting a psychological experiment (Sandplay Therapists of America, 2016). The goal is to make sure the human studies are not at-risk for psychological or physical harm. In addition, a post-experimental debriefing is now required to ensure that subjects are not harmed in any way by the experiment (Smith, 2003).

The Stanford Prison Experiment demonstrates the manner in which a single leader (the experimenter) coupled with policies and procedures (roles and responsibilities) produced a powerful psychological and behavioral effect upon a group. Therefore, human capital managers must recognize that their role within an organization serves as a critical first step toward establishing company conduct, behaviors, and relationships. Moreover, the type of language that is used in recruiting key members of an organization may strongly influence the type of individuals who eventually populate the company structure.

Therefore, one must ensure that job postings emphasize the importance of positive and enriching work environments, which may attract individuals who are interested in propagating the company's work-place objectives. Simply advertising jobs as highly paid without referring to company culture may attract individuals who actively seek compensation at the expense of their company and it's membership. Therefore, recruitment strategies must be constructed so as to ensure maximum congruence with the company's mission and vision.

Company leadership, recruitment, and policies must be designed such that individuals and groups are required to engage in pro-social behavior that stimulates work-force engagement and maximizes productivity.

### Study #9: Harlow's Monkey Experiment

The ninth unethical psychological study is Harlow's Monkey Experiment. During the 1950s, Dr. Harry Harlow of the University of Wisconsin explored infant dependency (Smith, 2003). In order to avoid using human subjects (babies), Dr. Harlow experimented on a rhesus monkey. During the first day of the experiment the monkey was removed from the mother with whom he had already established a bond. The monkey was isolated by himself for almost a year before two "alternative" artificial "mothers" were introduced to the him. One mother was made of wire and one was made of cloth. The wire mother fed the baby monkey through a bottle, but the cloth mother had no real purpose other than as a comfort mechanism (it was just a prop).

The baby monkey spent most of the next day surrounding the cloth mother. He only went around the wire mother one time for 60 minutes. Ironically, even though the wire mother was associated with food, the baby monkey preferred to stay with his cloth mother. Dr. Harlow also used manipulation and intimidation tactics to test out his nature vs. nurture theory. He would scare the baby monkey to see who he would run to - the cloth mother or the wire one. The baby monkey continuously ran to the cloth monkey when frightened. Next, he isolated the monkey from other monkeys to demonstrate that if a monkey (or a baby) does not experience bonding and social interactions at the infant stage, he or she will have a hard time assimilating, bonding, mating, and interacting with others as they get older.

According to Dr. Harlow, it is important to have a solid mother/child bond, primarily because the mother is the child's source of comfort, safety, warmth, love, acceptance, basic needs (i.e. food), and affection (Smith, 2003). When a child does not experience this bond with his or her mother, he or she is at-risk for psychological damage caused by inadequate and/or neglectful attention and care from a caregiver. In 1985, Dr. Harlow was banned from performing this experiment due to new APA rules against mistreating animals and humans (Smith, 2003).

In recent years, however, Dr. Ned H. Kalin, psychiatrist and Department of Psychiatry Chair at the University of Wisconsin, conducted a similar experiment in which monkeys were separated from one another and introduced to alarming stimuli in order to observe their reactions. The goal of this experiment was to explore anxiety (Smith, 2003). This experiment has been met with resistance from both the public and human and animal welfare organizations. This experiment is deemed immoral because it inflicted pain upon helpless animals (APA, 2016b). As a result of the experiment the animals experienced emotional distress and psychological harm. Following the study, the monkeys exhibited signs of anxiety, phobias, and depression. Some never recovered (Smith, 2003).

Human capital managers may learn from this research. Companies must ensure that they treat the members of their organizations with respect, and they must not be subjected to abuses. They must recognize that primates place a higher value on a sense of physical and psychological safety and security when compared with securing access to food, water, and shelter. Therefore, the employer must cultivate a positive, safe, and nurturing environment for it's team members in order to ensure that worker distress is resolved through returning to seek connection at work - Not at home in isolation. Challenging life events such as divorce, death of a loved one, or periods of economic contraction may result in increased sick-leave and reduced worker engagement and productivity. The reason that workers choose sick-leave is because their work-place environment is akin to the wire-monkey: Cold, harsh, and useful for sustenance alone. Conversely, their home environment is regarded as warm, safe, and nurturing. Therefore, employers must strive to ensure that their team members find the environment to be physically comfortable, safe, clean, and socially engaging. Alternatively, employers must also ensure that staff are provided with the option of working from home, because this simultaneously provides the benefits of fulfilling an individual's personalized need for safety while ensuring that they continue to remain engaged and productive.

### Study #10: The Milgram Experiment

The tenth infamous psychology experiment is The Milgram Experiment. The Milgram Experiment was supervised by Dr. Stanley Milgram, psychologist and Yale psychology professor. Dr. Milgram conducted this social psychology experiment because he was fascinated with human cruelty during the Holocaust. He wanted to better understand why masses of Germans participated in cruel acts against Jewish people during the Holocaust. Dr. Milgram theorized that people, in general, commit such heinous crimes because they have been taught to obey authority figures.

Once he figured out a possible reason as to why people behave in such ways, he posed the question, "Did Eichmann and his numerous Nazi comrades torture and kill Jews during the Holocaust simply because they were ordered to do so by their commanders?" According to Dr. Milgram, if the answer to that question was "yes," then everyone involved was an accomplice. He wanted to know more, so he explored this idea through The Milgram Experiment.

Dr. Milgram and his colleagues recruited participants by telling them they would be participating in a memory study. The study involved two sects of participants - "teachers" and "students." However, the "students" were actually paid actors, while the "teachers" were the actual participants. The participants were white men from diverse occupations and various levels of education. Before the study began, the participants were asked to draw a card that either said "teacher" or "student." The drawing was rigged so that the participants always drew the "teacher" cards.

The "teachers" and "students" were then separated and placed into separate rooms. They were given instructions on how to behave once the study began. The "teachers" were instructed to press the shock level every time the "student" did not provide the correct answer to a question. The "teachers" and the "students" remained in two separate rooms, so they could not physically see each other. The electric shocks increased in intensity every time the same "student" provided an incorrect answer. The "teachers" were told that they were shocking the "students," when in reality they did not have this capability - The "students" were actors.

After several high-intensity fake shocks, the actors ("students"), started to pretend to be upset and angry. After a while, they began to scream after receiving an increasingly intense fake shock. As a result of the experiment, Dr. Milgram found that even though the participants (the "teachers") believed that the actors ("students") were experiencing discomfort, pain, and anger, they continued to shock them because that is what they were instructed to do. It is important to note that if the shocks had been real and continued for a long time at a high-intensity voltage, the majority of actors ("students") would have died.

This experiment is a prime example of psychological harm. The participants ("teachers") really believed that they were shocking the "students," and as a result they experienced psychological distress. One of the "students" even pretended to have a heart attack. The participants felt terrible after fake shocking the "students". Although the participants ("teachers") really believed that they were shocking the "students," it did not deter them from administering the shocks. The participants were told that it was okay to administer the shocks because it did not damage the tissue - it was just painful, yet, they continued to administer the shocks.

The participants were deceived by Dr. Milgram and the researchers. They neglected to reveal the true nature of the experiment to the participants; therefore, they never acquired a true consent from them. Following the experiment, some of the participants experienced PTSD, anxiety, and/or depression symptoms. This experiment lacked informed consent and involved deception and psychological harm. Lastly, critics argued that the experiment was a failure because half of the participants "disobeyed" the instructions by asking to stop the experiment, questioning the purpose of the experiment, and asking to check on the "students" being shocked. Moreover, the participants were led to believe the shocks were real, which subjected them to excessive psychological distress.

In conclusion, Dr. Milgram suggested that the reason so many Germans, especially poor Germans, treated Jews the way they did was because they were poor and therefore more inclined to obey authority figures or people they deem to have power. He theorized that more affluent people tend to be more confident and more likely to refuse to obey similar orders. According to Dr. Milgram and his colleagues, it was highly doubtful that the participants ("teachers") would have shocked the "students" so intensely that it would have killed them. He believed that they would have stopped before it got to that point, but there is no evidence to support that theory.

The Milgram experiment demonstrates the importance of ensuring that authority figures are trained to provide positive and pro-social instructions to their staff. Authority figures are strongly influential within an organization, and the risk of abuse is highest when power is greatest. Therefore, human capital managers must ensure that all members of their organization are familiar with these experiments so as to avoid the potential risks associated with authority figures and the abuses that may arise from group behavior. Next, one may proceed with a review of economic and market behaviors beyond the boundaries of the organization and into the broader economy.

#   

# Principles of Early Economic Thought

## Principles of Early Economic Thought

Companies that invest in land, durable goods, human capital, and the financial markets must understand the origin of the markets in which their organizations operate. These theories are critical for recognizing how government policies and private sector trends may impact potential economic events so as to prepare for and capitalize upon recessions and depressions while maximizing growth during boom cycles. Moreover, these theories are critical for understanding how early and contemporary thinkers have determined value, price, and the methods of capitalizing upon material and human resources.

The earliest economic thinkers were principally concerned with contemplating the moral characteristics of "the just price" and how a society as a whole must allocate resources to promote the public good. Meanwhile, contemporary thinkers have continued to develop theories of value while either promoting or preventing the government regulation of markets. Through reviewing the origins of economic thought and it's development, one may develop strategies for implementing policies and practices that leverage the span of 2,000 years of economic thought.

Companies may first learn from Aristotle's publications in order to develop a framework for ethical company policies that promote the wellbeing of present company needs and future economic development.

### Aristotle: The Ethics of Economic Behavior

Aristotle's Politics described the multiple forms of government, which included monarchy, aristocracy, constitutional government, tyranny, oligarchy, and democracy (Aristotle, 2013). Aristotle believed that the scarcity of resources represented a moral problem, because the objective of production was consumption in order to sustain the growth and development of a family - Specifically, for children and their future. Therefore, Aristotle advocated for limits upon consumption so as to ensure that only the needs of children served to justify the level of goods and services utilized. Overconsumption by adults would undermine these standards within a society and destabilize the next generation of citizens. Therefore, "natural" transactions were those which produced only the quantity of resources required to satisfy a specific purpose within society. "Unnatural" transactions were focused upon unlimited wealth and profit, which was not focused upon meeting specific social needs, but was regarded as an end unto itself.

Aristotle's Nicomachean Ethics described a three-fold role of justice within exchange, which included distributive, corrective, and reciprocal justice (Aristotle, 2012). Distributive justice described the manner in which equal shares of a resource must be distributed among equals and unequal shares among unequals. Corrective justice described the manner in which one must subtract the amorally begotten gains from one individual in order to compensate another individual for their losses. Reciprocity was another form of justice, which was principally focused upon considering the motivations of an individual when they engaged in a particular act. Therefore, Aristotle's principles set the stage for determining how to respond to a crime that was committed intentionally vs. non-intentionally.

Human capital managers must ensure that their companies are operating within an ethical framework, which ensures the proper treatment of staff and the strategic preservation of resources. Companies whose leadership teams are focused upon wealth for it's own sake but do not hold any regard for the manner in which their behavior may adversely impact their staff, the broader economy, and the environment must be regarded as unethical, and their behavior must be retrained. Throughout the 20th century many companies have behaved in an unethical manner due to both economic interests and lack of knowledge about their impacts upon the environment. Consequently, the government responded in order to regulate these companies in order to prevent the degradation of the planet. Therefore, companies that prefer to operate freely and determine their internal policies must behave ethically and responsibly so as to avoid the passage of new government legislation, which may become onerous.

Companies may also develop their business practices with consideration for traditional Chinese wisdom on the subjects of how to regard money, labor, and investment opportunities.

### Chinese Thought: Strategic Investments

Fan Li, Confucius, and Wang Anshi were three influential figures within ancient Chinese government and economics. Fan Li was an advisor to the King of Yue as well as a successful businessman who sold Chinese medicine through his privately owned pharmacy (Xu, Kang, Fu, Goh, & Koh, 2008). Fan Li believed that those who best understood the nature of money would be those who were unattached and prepared to abandon it's use - Money was a means to an end rather than an end unto itself. However, money would need to be managed according to a core set of principles.

These principles included formulating knowledge of how to work with people, stimulate employees to actualize their greatest potentials, educate consumers on the value of products, acquire capital at the best price, analyze opportunities and threats, lead by example, and develop knowledge of market trends and business cycles. He also advocated that individuals must collect on their debts promptly, capitalize upon real opportunities rather than acting upon group instinct, continually make progress, and always maintain strong reserves for when business cycles change, among others.

The Chinese government was divided into multiple factions, and debates regarding the role of government in the economy were continuous. Confucianists believed that government control was unnecessary, and free markets should reign, because the government must not be in a position to compete with the markets for profits. This was due to the belief that the government was inherently exploitative when it engaged in any form of commerce. Meanwhile, the legalists believed that government intervention was critical for regulating the markets, and their policies tended to become dominant during war-time.

Meanwhile, Chancellor Wang Anshi believed that the government should provide inexpensive loans for agricultural production, which was the foundation for the Chinese economy. Anshi implemented policies that provided the government with a monopoly over the ever important tea, salt, and wine industries. The Chinese government, as with many governments around the world, have since experimented with a variety of free-market and government-regulation strategies - All with a variety of successes and limitations.

Companies must recognize that China is one of the oldest continuously operating governments, which suggests that this culture may have preserved highly effective and valuable information regarding the proper management of resources. Therefore, companies may learn to apply similar principles as those exemplified by Fan Li, Confucius, and Wang Anshi. Human capital managers must ensure that the prudent investment of time and capital into opportunities for business growth serves as a standard practice for strategic business development. Therefore, they must strive to focus upon real opportunities rather than group-think and volatile decision-making.

Meanwhile, the free market must be recognized for it's capacity to produce economic activity. However, once markets have emerged to produce wealth and allocate resources to a variety of capital intensive projects throughout a region, government intervention may be utilized to influence the economy - To the benefit of the economy or to it's detriment. Human capital managers must recognize that regardless of one's personal political dispositions, these forces are constantly in motion, and they must be accounted for when planning a company's growth and development.

### Middle Age Economics

Companies may also consider the nature of theologically-driven altruistic values, which strive to promote the wellbeing of all members of global society. Thomas Aquinas was a Catholic Italian theologian who also wrote on economics, and one of his principle treatises, Summa Theologica addressed the nature of the just price, which was critical for social cohesion. According to Aquinas, the just price was important in order to ensure that production costs could cover the cost of a worker, his family, and other investments essential to the production of valuable goods (Aquinas, 1981). Therefore, raising prices in response to increased demand was unjust (consumer gouging), because the price exceeded the actual need of the producer. This was similar to Aristotle's view on the relationship between profit as a means to an end rather than an end unto itself.

Meanwhile, Duns Scotus believed that the just price could be calculated precisely through measuring the cost of labor and other expenses. Scotus also believed that suppliers served a practical role in delivering essential goods to society, which promoted the growth of a civilization. Further still, Jean Buridan believed that metal value held purchasing power, which varied according to changing economic factors. However, he believed that aggregate demand rather than individual supply and demand was most influential in altering prices. Therefore, the just price was the one which a whole social system wanted to pay rather than the preferences of an individual.

Companies must recognize that theories of the "just price" have continued to influence company policies and market behavior throughout the world. Theories of which price accords with justice may vary throughout the modern economy, but the general principal of negotiation for maximum personal gain has persisted. Corporate buyers strive to reduce the costs of acquiring new capital and hiring laborers, while corporate sellers strive to sell their products at the highest prices, and workers look to increase their compensation.

Therefore, the balance of supply and demand has continued to determine the fair market rates for goods, services, and labor, while unethical business practices that exploit workers or consumers typically result in government regulation and price-setting. Therefore, companies that prefer to avoid government regulation must also avoid unethical business practices while simultaneously justifying why their pricing is just and reasonable. Revised: Final sentence removed.

### Mercantilism in International Trade

Mercantilism in Europe described the means by which strong militaristic governments engaged in trade in order to promote exports and the accumulation of wealth within it's own country (C.W., 2013). Mercantilism was based upon the premise that international trade could only benefit one dominant nation at a time, so tariffs were used in order to encourage exports and discourage imports. That is, surcharges were placed upon goods that originated from another country (such as French goods entering England) in order to increase their price. This was designed to make domestically produced products more attractive to consumers and therefore circulate limited money and precious metals within the boarders of the nation.

Companies that operate within mercantilist countries could maximize their profits through working with the government in order to enhance their leverage during negotiations with other countries. Through ensuring that government interests and private interests are synergistically connected, organizations may ensure that their trades are stable and consistent. Meanwhile, these projects must simultaneously strive to remain ethical so as to avoid potential conflicts that could arise from mercantilist behavior. Companies that engage in behaviors that could precipitate war and harm to innocent civilians through combat or economic exploitation must restrain themselves from such conduct so as to maximize peace and prosperity for the world. To behave in a militaristic fashion so as to control and enslave other countries would represent an unjust price of engaging in business, which would reduce the performance of the global economic system.

Meanwhile, companies may also consider the ethical practices proposed by theologically-driven altruistic models through learning about the School of Salamanca's objective of preventing the collection of interest on debt (The School of Salamanca, n.d.).

### Practices in Generosity

The School of Salamanca was an economic school that originated from Francisco de Vitoria's work. The school held that all humans were endowed with the same nature and therefore were endowed with the same rights to life and liberty, regardless of their origins or class. De Vitoria believed that the natural law therefore encouraged the practice of commerce, which embodied the entrepreneurial spirit and served to promote the freedom of all individuals to actualize their highest potentials. Therefore, private property was regarded as a positive characteristic of healthy economies, and the goods that land could produce therefore belonged to the property owner. However, this property and it's goods should be subject to the commons in the event that famine or disaster strike the broader community. Prior medieval theories suggested that value was determined by the cost of production, which constituted the just price, but the School of Salamanca suggested that scarcity was the underlying source of value for all things. Consequently, the free market would serve as the best means by which to set just prices, because the scarcity of resources, and hence, their value, may vary from region to region and person-to-person. The relative subjective need of the producer and the consumer is therefore the primary cause for setting prices for goods based upon supply and demand.

The Catholic Church viewed charging interest on loans as unethical, because loans were primarily made only during periods of resource scarcity in order to survive. Hence, profiting from another's misfortune was immoral. However, the Renaissance gave rise to loans for the purposes of commercial development in order for merchants to expand their businesses in anticipation of future profit potential. Therefore, loans became practical as a product with additional economic utility. In fact, Martin de Azpilcueta became the first person to formally establish the conception of the time value of money, where people prefer to receive goods immediately rather than at some future time (time preference), which influenced interest rates (Staff, I. 2016).

Companies that currently focus upon growth through servicing debt may have been regarded as unethical during the previous periods of rule by the Catholic Church. However, the Renaissance thinkers produced a rational justification for charging interest for loans - That issuing a loan is associated with a cost to the loan provider. Therefore, companies may rest assured that charging interest is ethical insofar as their interest rates are reasonably connected with the cost of issuing a loan. Companies that mislead consumers and change interest rates covertly so as to deliberately exploit the market must restrain their behavior, lest they harm the broader economy and invite onerous government regulations to their industries. Therefore, companies must continue to strive for ethical practices when transacting business throughout the broader economy.

Meanwhile, companies may also recognize that the principle of psychic capital has informed resource valuations for centuries before 20th century psychology codified human drives.

### Psychic Capital

Leonardus Lessius was a Jesuit theologian who studied Antwerp, a rapidly expanding center of commerce, where he established a new approach to the just price (Zera, n.d.). He was one of the first to formally establish that the price of insurance may be related to the risk of the insured. Leonard Lessius proposed that the just price was represented by the free market, which should naturally produce the correct price for a good or service. However, he also believed that government imposed pricing regulations could be just prices, so long as these prices were lower than the market price.

Furthermore, Lessius believed that entrepreneurship served as the greatest potential economic engine, because individuals possessed of this capability tended to synthesize new means of production through combining jobs and creating new fields. These individuals could capitalize upon economic transactions more efficiently than employees seeking compensation with an employer.

During his time, money lenders were severely restricted from charging interest when issuing loans, because interest was perceived to be immoral. However, Lessius was a strong proponent of free market economics for investors and money lenders. Lessius believed that any form of capital, when invested in the form of a fund or a loan, was more effective at increasing economic productivity than money that was saved. Moreover, Lessius recognized that liquidity had value, so a lender who temporarily reduced their liquidity by issuing a loan suffered a temporary loss of value as well as the additional risk of a potential default on the loan. Consequently, he worked to liberate the practice of banking and collection of low and high levels of interest, which were previously prohibited. Lessius also established the theory of psychic compensation, which was represented by psychologically rewarding compensation such as official titles, status, and other fringe social benefits. This could serve to subsidize a low wage so as to ensure just compensation.

Companies must recognize that financial compensation is only one of many forms of compensation. Psychic compensation is a critical component of the employer-employee relationship as previously reviewed through human needs based psychology. Human beings are driven to work for employers that provide them with a sense of safety, connection, significance, knowledge, growth, moral values, and existential purpose. Therefore, compensation must include both financial payments as well as an enriching mission, vision, community, and work environment. Through providing individuals with these additional forms of compensation, companies may enhance their value proposition to prospective candidates. This principle is also critical for companies that interface with consumers, because consumers are responsible for determining the subjective value of the goods and services that are offered. Consumers determine price not only based upon the actual capital and labor that was invested into an object's production, but also to it's psychic attributes. The goods and services must therefore satisfy one of their multiple needs to one degree or another - This influences pricing.

Consider the example of the Catholic Church - A religious organization that successfully collects billions of dollars per year through providing psychic value. Through providing a service (mass), which imbues recipients with a sense of safety (you are saved), connection (you are loved), significance (you are the elect), knowledge (framework for interpreting reality), growth (moral development), higher values (moral codes of conduct), and existential purpose (spiritual place for life after death), the Catholic Church has successfully provided psychic capital in exchange for financial compensation.

Although the financial compensation is typically collected in the form of voluntary donations, this is an incomplete perspective, because parishioners must pay psychically or through psychic payment and physical labor. Parishioners who do not pay the Church through providing voluntary donations may pay psychic capital in the form of guilt or the investment of their labor in the form of volunteer work. This once more emphasizes the critical role of psychological need fulfillment in the determination of prices for goods and services - Both tangible and intangible.

### Utopian Economics

Companies must also recognize that human beings have historically returned their attention to the question of a just, balanced, community-oriented life. Therefore, organizations must strive to fulfill the human needs for safety and connection that are so frequently idealized within utopian visions of the future, lest workers seize the means of production and destroy free-markets.

Sir Thomas More published Utopia, which served as the foundation for the principles of socialism and communism (More, 2015). The book was published as a fictional account of the ideal society located on an island located in the New World (the Americas). This idyllic society is possessed of no private property, but rather, a common warehouse where goods are stored and retrieved according to each individual's need. The houses have no locks on the doors, and all members of the society rotate from one house to another every decade in order to provide everybody with equal access to all lifestyles. Each citizen is assigned a specific duty in order to supply the community with the wide range of goods that are required for a high quality of life - Sewing, carpentry, metal smiths, masons, etc. All citizens are fully employed with producing their goods, so unemployment is reduced. Due to the availability of the surplus labor, the length of the workday is reduced, and 6-hours represents the longest work-day.

The divergence of meritocracy vs. communism has historically been a fallacious division of perspectives, which are, in fact, congruent and compatible with each-other. Human behavior has consistently presented both free-market trade and communistic tendencies, because both are necessary and essential elements of human civilization. Trade is critical to establish robust free markets that raise global standards of living through capitalistic endeavors. However, these free markets may only persist so long as the global commons is respected, and citizens are free from the adverse effects of corporate activities, which may contribute to personal or ecological destruction.

Revised: Paragraph removed.

### The Quantity Theory of Money

Nicolaus Copernicus is regarded as the first person to have published a work on the quantity theory of money. Copernicus described the manner in which injecting additional currency into the money supply would devalue a currency. His monetary policy regarded "bad money" as that which "drives out good", which was later described as Gresham's Law by a later theorist named Sir Thomas Gresham. Therefore, much of Central and Eastern Europe still regards this as the Copernicus-Greshem Law (Rothbard, n.d.). He explained that "Money can lose its value through excessive abundance, if so much silver is coined as to heighten people's demand for silver bullion. For in this way, the coinage's estimation vanishes when it cannot buy as much silver as the money itself contains [...]. The solution is to mint no more coinage until it recovers its par value" (Economic History Society, 1997)

Copernicus also described the manner in which money, velocity, and price level are related to economic output. As with Aristotle, he also described the unique distinction between the utility value and exchange value of commodities, concepts which were later re-introduced by Adam Smith. Meanwhile, Jean Bodin has also been credited as one of the early originators of the quantity theory of money, where the quantity of money in the economy was correlated with price levels (Bodin, Malestroit, Dyson, & Tudor, 1997). He conducted the first recorded formal analysis of an inflationary trend in Reply to Malestroit, where an increase in European money supply had stimulated the economy but also caused inflation and debased the currency. Spanish ships from South America brought huge quantities of silver and gold to the nation, which triggered an increase in prices.

Companies must recognize that the quantity theory of money constantly influences their organization. Governments that inject more money into the economy through the artificial production of fiat currencies may produce inflation - The rising of prices. This increase in prices may impact the company's cost of doing business through increasing the cost of both material goods and labor.

#   

# Foundations of Modern Economics

## Quantifying Resources to Inform Public Policy

William Petty is credited with being one of the first modern economists - He was an English economist who published works in the tradition of Francis Bacon and Thomas Hobbes (Fox, n.d.). He served as a personal assistant to Thomas Hobbes, whose theories, as with Francis Bacon's, were anchored within a posteriori reason as a means to achieve social peace and prosperity. Therefore, empirical observation and mathematics were to be the purest forms of reason. Petty implored the application of quantitative analysis in order to monitor economic policy, which he referred to as political arithmetic. Therefore, Petty is regarded as one of the first people to utilize a mathematical approach to public policy and economics. His principle works included Treatise of Taxes and Contributions, Verbum Sapienti, and Quantuliumcunque concerning money.

One of the primary subjects of his work included a study of the Dutch and the Irish. During his time, the Dutch countries sproduced the highest levels of economic output, and Ireland produced some of the lowest levels. England's access to the Irish territories therefore provided Petty with the resources to enhance England's productivity - So long as the English utilized the Irish culture and land efficiently. Petty performed an analysis and proposed that the Irish were simple farmers with a Catholic preference for asceticism who lived in small, soot-filled, and unsanitary cabins. Therefore, the Irish were both disinterested in the productivity required to raise their living standards (preferring the simple ascetic lifestyle), and unequipped to do so by virtue of their living and working facilities. Therefore, he believed that Irish land could be more effectively utilized through colonizing their nation with the English population and Anglicizing the culture so as to enhance the nation's work ethic, values, and make use of it's vastly underutilized acreage. Note: The Irish may dispute this characterization of their culture and instead claim that the English are imperialistic invaders who hold no claim to their resources.

Regardless, William Petty designed a series of principles for public taxation and expenditure policies, which were to be applied by a monarch for the governance of society during war times. He advocated quantitative analysis as a means by which to properly determine the fair level of total taxes that were required in order to operate a government without disproportionately impacting the poor. Petty favored consumption taxes that did not exceed the minimum requirements for the government to meet it's responsibilities to society. During his time, the economy was transitioning from a barter economy into a currency-based economy, so he advocated that taxes should be paid through the form of goods so as to allow for full participation in the tax system by all members of the nation. Petty believed that the nation's wealth was not determined solely by it's supplies of gold and silver, but rather, through assets such as land, ships, equipment, and homes. Consequently, Petty developed the first statistical analysis designed to assess the nation's true wealth. Through applying simple averages, Petty was not a sophisticated statistician, but he advocated for the government collection of data and the need for a national census agency, which was absent at the time.

Petty also developed a theory addressing the velocity of money (Petty, 1899): Here, he contrasted the total quantity of money supply with the actual wealth, and he believed that a specific quantity of money was required to circulate within the economy in order to maximize economic productivity and trade. Therefore, banks were important in order to serve as a mechanism by which to stimulate monetary velocity and therefore the economy. Petty extended Aristotle's theories on value and proposed that inputs of land and labour would serve as the primary determinants of value. These two inputs comprised the value of a product and the just price of a product was therefore a function of inputs. Petty also argued against the government control of interest rates in favor of market-driven interest rates - Greater risks would require greater interest as determined by the lender. He was also opposed to the government regulation of imports and exports, but he favored policies designed to simulate employment.

Companies must recognize the critical role of quantifying data related to their material resources (land, tools, machines, etc) and their labor resources. This ensures that one may accurately account for and and utilize the maximum capacity of one's resources in order to enhance productivity and growth. Through monitoring the quantity of time that staff utilize in order to complete a series of tasks, which represent their core operational functions, one must move one step further to capitalize upon the vast acreage of the mind. Human beings were once capable of being treated as machines designed for a single task - Operating an assembly line with the greatest level of machine-like accuracy and efficiency. However, these simple and repetitive tasks will be increasingly relegated to machines, which creates a new opportunity to capitalize upon one of the most unique elements of human thinking: Creative problem solving.

This may be regarded as similar to Ireland's underutilized acreage and workers who were not prompted to fully capitalize upon their land. Human capital is capable of synthesizing information, developing new strategies to maximize growth, and implementing those strategies, which have become the future of the work-force, because they have not been replicated by machines. Therefore, through training staff to engage in information synthesis and creative problem solving, one may capitalize upon the most valuable resource available - The creative capabilities of the human mind. This vast acreage of problem-solving potential may be capitalized upon through implementing positive psychology interventions and kaizen as previously discussed.

### Generating Value from Nature

John Locke believed that the natural world was the source of value, which was converted into utility through human labor (Vaughn, 2012). Nature provided the raw materials for labor to generate goods and services. Meanwhile, this labor is that which confers upon an individual the right to own the property from which one produces goods and services. Property ownership must therefore remain free from government interference - The government's only role is to ensure that social contracts are properly upheld. Locke's conception of the social contract contrasted with that of Thomas Hobbes. Hobbes's Leviathan described the natural state of human civilization as one that is constantly competing for resources and in a battle for dominance (Hobbes, 2017). Therefore, a strong central government must be established in order to mediate the social contracts, or agreements between and among a nation's population. Members of a state must yield some of their power to the government in order to ensure adherence to rules governing commerce. Locke agreed with many of these principles, but he also believed that human beings were intrinsically reasonable, and this served as the origin of the universal virtues of equality and freedom to defend one's "Life, health, liberty or possessions". Meanwhile, individuals were possessed of both the right and the obligation to engage in revolution in the event that a government became oppressive or despotic. Therefore, individuals contracted with each-other and the state in order to form consistent rules through which to engage in commerce. Consequently, failure for any of these parties to meet their obligations within the social contract would cause societies to revert to the principles of natural law and natural rights, precipitating revolution if necessary. Therefore, Locke advocated for the separation of powers within government as a means by which to ensure that a singular central authority did not rapidly degrade into a despotism and destabilize the social system.

John Locke also believed that unused property and spoilage constituted a wasteful misallocation of resources, and the development of money (durable goods) served as a means by which to prevent the spoilage of food. For Locke, this would resolve many of the problems associated with resource waste but introduced the problems intrinsic to accumulated wealth and inequality. Locke believed that the formulation of government was necessary in order to mediate the disputes that would arise from this problem, but he did not propose a specific course of action.

Locke's theories on the prices of commodities were described in terms of supply and demand, or "quantity" and "rent" within the context of resource scarcity. Moreover, the value of goods and services could be determined through the tool of money, which served to both measure value and to claim right to the possession of goods and services. Gold and silver were regarded as the best objects with which to serve as a monetary base, because these were universally valued by all major economies. Locke also advocated that nations increase their money supply in order to ensure that they remain on pace with the rate of growth in the global money supply, which is constantly increasing. Finally, Locke also defined a variety of cash requirements for property owners, laborers, and brokers. He believed that brokers (middle-men) extracted value from the property owners and laborers, which produced a negative influence on a nation's economy.

David Hume and Dudley North's perspectives agreed with Locke's view that that wealth was determined primarily by land and labor, where gold and silver were merely tools for facilitating trade (Hume, 2015). However, Hume did not believe that property was a natural right - Rather, property was a necessity for trade. Dudley North attributed economic contractions to an excess of supply or reduced consumption, and he believed that government protectionism was harmful to both the home state and the practice of trade for all members of the general public (North, 1971). Therefore, prices must be determined through the markets rather than government regulation. Hume also believed that government regulation as a means by which to achieve a fixed balance of trade was not possible, because the accumulation of wealth would result in domestic inflation (Hume, 2015). For Hume, property and wealth must not be distributed equally, because this would undermine the practice of industry and business development, impoverishing a nation.

### Adam Smith: Self-Interest, Competition, and Free Markets

Companies may also learn from one of the founders of modern economic thought and his theories on how self-interest drives economic behavior, competition stimulates innovation, and how supply and demand emerge within a free market.

Adam Smith has been regarded as the principle father of modern economic and political economies through his publications, The Wealth of Nations and An Inquiry into the Nature and Causes of the Wealth of Nations (Rothbard, 2011). This work was published during the French and American revolution, which coincided with the industrial revolution and the emergence of tremendous wealth. Adam Smith proposed that value could be determined based upon the labor utilized to produce a good or service. Compare with Carl Menger, Founder of Austrian School of Economics (Hitchens, n.d.).

Smith's three natural Laws:

42. 1. Self interest. Individuals strive for their own gain.

43. 2. Competition. Competition stimulates innovation.

44. 3. Supply and Demand: Goods are produced at the lowest possible price that meets demand.

Smith believed that economies functioned best when organized according to a "system of natural liberty", where those with ego centric self-interests were naturally regulated by free market forces, and their behavior would naturally serve to benefit the broader economy. Here, individuals engaged in commerce, and producers would naturally provide a just price to consumers, because the market provided individuals with multiple options. Suppliers and consumers were both price setters, and the relationship between supply and demand would serve to naturally balance the economic system. The self-interests of both suppliers and consumers served to co-regulate their behavior and therefore the behavior of the broader economy.

Smith believed that the role of government was limited to truly public institutions for which there were no private entities who would want to operate or sustain them. Rather, "Every system which endeavors . . . to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it . . . retards, instead of accelerating, the progress of the society toward real wealth and greatness." Smith also believed that monopolies were incompatible with a successful economy, because they ultimately constrained the production of goods and resources at the highest possible quality. Smith encouraged governments to enforce contracts, protect property rights, patents, copyrights, and to engage in public works projects (roads and bridges). Smith contrasted regulations that inhibited the growth and prosperity of the markets with regulations that encouraged growth.

Jean-Baptiste Say contributed to the popularization of Adam Smith's work, but he also developed a unique principle known as Say's Law, which was further applied by James Mill, father of John Stuart Mill (The Concise Encyclopedia of Economics, 2008a). This principle states that producers of goods and services generate their own demand - That is, supply creates demand. For example, prior to the development of leather, there was no demand for leather. Once leather was produced for the first time, the marketplace recognized it's value, and demand emerged. Moreover, Say believed that there could never be an excess of commodity supply throughout an entire economy (Say, 1834). Rather, any apparent supply glut within an economy is due to the failure to produce another product for which there is already adequate demand. The apparent glut of one good is, in-fact, evidence of a shortage in the supply of another, potentially unknown good.

James Mill and David Ricardo supported this view, but Thomas Malthus and John Stuart Mill disputed this principle while simultaneously advancing the theory that general gluts do, in-fact, occur. The presence of supply gluts has since been generally supported by subsequent economists.

Companies must recognize the way in which self-interest drives economic behavior in accord with the previously discussed hierarchy of needs. Companies are comprised of a team of staff and a consumer base, which are primarily interested in securing the fulfillment of their needs. Therefore, one may design and implement strategies that maximize need fulfillment for staff so as to enhance staff retention, engagement, and productivity. Meanwhile, goods and services must be designed so as to ensure that consumers feel the company and it's products represent their interests first rather than serving as an exploitative organization that seeks an unjust exchange to extract resources from the market.

Companies must also recognize that competition within the market represents a natural condition that simultaneously stimulates innovation and requires it for survival. Indeed, consumers may freely choose which product to purchase within the market, so individuals who manage productive organizations must continue to develop new strategies for innovating within their markets.

#   

# Modern Economic Theorists

## David Ricardo: Free Markets & International Trade

David Ricardo's theory of value agreed with Adam Smith's position that labor inputs determined an object's value in the market (Ricardo, 2004). Ricardo published On the Principles of political Economy and Taxation, which advocated for free international trade policies and distinguished between workers with fixed wages and property-owners who could derive profit and residual income from their assets. Ricardo also proposed that population growth was linked with the necessity to increase agricultural production. However, land may gradually lose it's capacity to produce yields over time, so the cost of goods may rise alongside wages, but profits could steadily decrease. Once profit-margins decreased beyond a specified level, the agricultural economy would reach a steady state. This principle could be extended to include all physical products within a resource scarce environment. Here, all elements of a resource-scarce economy would ultimately tend toward a steady state, but all economic resources that are virtually unlimited (i.e. knowledge) would still provide opportunities for growth. Meanwhile, Ricardo also developed a labor theory of value, which proposed that objective economic value was determined by the influence of workers, resources, and populations, rather than a resource's actual use. Principles included:

45. 1. A large number of workers and resources reduces their cost.

46. 2. Wages fall as population increases.

47. 3. Limited resources + limited workers = Higher costs.

David Ricardo's work influenced John Stuart Mill, who published Principles of Political Economy, where his economic theories emphasized the importance of free markets (Mill, 2004). Mill recognized the importance of government intervention for the purposes of animal welfare and taxation. However, he was averse to progressive taxation, which served to increasingly penalize those who produced greater resources for the economy and naturally yielded a higher profit - Rather, he preferred a flat-tax. During his later years, he amended his first publications and recognized the value of socialist policies such as co-operative wages, and he grew to advocate for profit sharing among a company's workers. Just as with David Ricardo, Mill believed that perpetual growth within the economy would result in the destruction of the environment's natural resources and a reduced standard of living for all. Therefore, the steady-state economy was growth's natural end, and he advocated for birth control as a means by which to preserve the standard of living for the working class, because overpopulation tends to decrease resources.

Human capital managers must recognize that their company operations may impact the environment, which degrades their long-term capacity for productivity and growth. Companies that over-farm their land without replenishing it's nutrients will discover that their annual yields steadily decline. Meanwhile, companies that over-work their staff without providing them with proper levels of rest, social engagement, a sense of connection, significance, intellectual challenge, growth, higher moral values, and existential purpose, will also witness the steady decline in their productivity. This typically occurs while salaries and wages remain unchanged, which raises the cost of production. Therefore, individuals must be replenished in much the same way that land must be replenished, lest the resources become exhausted of all utility.

### Karl Marx: Evolutionary Development of Communism

Karl Marx worked in collaboration with Fredrich Engels. They were the first to refer to the previous theorists as classical political economists, and Marx popularized the term "capitalism" (Marx, 2011). He believed that capitalism's exploitative attributes would inevitably result in the development of socialism, where the working class would join together in order to enhance their working conditions. They would achieve this through collectively negotiating with industry leaders in order to secure more favorable wages (i.e. labor unions). According to Marx, slavery was the first means of production in the ancient world, followed by the emergence of serfdom and feudal societies. Next, capitalism emerged, where individuals treated their capacity for labor as a commodity and offered their work in exchange for other resources. According to Marx, commodities existed in contrast to objects that existed within nature, and the fusion of labor with objects produced commodities. Moreover, these objects were possessed of both use value and exchange value. Meanwhile, objects in nature were intrinsically lacking in value until they were subjected to human labor, where the abstract metaphysical substance of value was unified with the object. For Marx, the capitalist paid the workers a lower rate of exchange value when compared with the worker's production in use value. Therefore, the capitalist's margins were comprised of the difference in these two values in the form of surplus value. For Marx, capitalism was naturally exploitative.

Furthermore, workers were alienated from the true value they produced through labor, which manifested through the realization of profit margins by the property owning capitalists. Meanwhile, these industrial leaders sought to replace workers with automated machine assembly in order to increase their margins, which would eventually result in unemployment. Through producing a large number of unemployed workers, capitalist leaders would suppress wages, because workers with limited options would volunteer to work for less. However, the suppression of price-setting power by the labor class would subsequently produce a glut in supply, because the labor force also served as the capitalist's consumer base.

The capitalists would then lose their capacity to realize a profit, further cut employment and wages, and produce an economic depression. Once the supply glut was resolved, the economy would return to a boom cycle of growth, but a bust cycle would inevitably follow. Over time, these depressions would produce consolidation periods, where larger firms acquired smaller companies, and economic power and resources would increasingly move into the hands of a few powerful economic rulers. The workers would then rebel and organize in order to form a communist style of government, where resources were shared equitably.

Therefore, companies must ensure that they avoid exploiting workers. This may be achieved through the following:

48. 1. Compensating staff at fair market rates.

49. 2. Providing profit-sharing opportunities in the form of stock options or bonuses.

50. 3. Enhancing compensation through psychic capital (need fulfillment).

This ensures that companies do not confront challenging negotiations with a unionized labor force, which typically forms in response to perceived worker exploitation. Through recognizing that companies may provide sufficient levels of compensation to workers, the work-force may naturally lose interest in confronting company owners with the formation of strong unions or lobbying for government regulations.

### Nicholas Roegen: The Preservation and Degradation of Resources

Nicholas Georgescu-Roegen suggested that both conventional economics and Marxism failed to account for the value of preserving ecological resources within the economy (Georgescu-Roegen, 1971). Consequently, economic development was not simply a function of maximizing the extraction of resources. Rather, the preservation of the natural environment was critical for ensuring a healthy and prosperous economy. He also suggested that thermodynamics could be introduced into models of the economy.

Conservation of energy, the first law of thermodynamics states that energy cannot be either created or destroyed within a closed system, which Roegen believed to be applicable to economies. Entropy, the second law of thermodynamics states that energy becomes increasingly chaotic and disorganized over time, which represents the principle of decay within an economy. Consequently, these processes of transformation are intrinsic to the process of production and consumption, which occur within physical systems that are subject to these laws. Roegen suggested that natural resources were default low entropy states, and high entropy states were manifested through pollution and resource degradation. Therefore, the process of transformation via the first law of thermodynamics occurred through supply and consumption as materials moved from low entropy to high entropy states. This suggested that production, trade, and consumption occurred during the transition states. However, he later modified this interpretation to address the process by which recycling objects produced a steady deterioration in their material utility. Therefore, although recycling could expand the duration in which resources could be used, energy would continuously be lost during each cycle of re-use. That is, resources could be stretched to last for a longer duration of time if recycled, but they could not be re-used indefinitely. Roegen also explained that solar resources provided a steady stream of radiation to the earth for agricultural production, which occurred on a generally stable time-line (i.e. crops grow at a steady rate as determined by their growth patterns in response to the sun). Meanwhile, mineral resources could be extracted and input into the economy at a rate that was highly variable and contingent upon human action (i.e. mining, refinement, etc.).

Roegen believed that the biological processes that drive human survival in the primitive world manifest through economies as the struggle to work and generate income. Therefore, Roegen believed that Marx's position on remedying economic problems was not possible - Rather, man's problems were inherent to his biological needs. Although civilization could be re-organized in order to allocate resources more equitably, the society would always organize itself into a ruling class and a class that is subject to their rule. This was Roegen's model of bioeconomics.

Roegen also suggested that the earth's carrying capacity was limited, and there would come a time in which Earth's mineral resources would be exhausted. Therefore, the rising population levels on the earth would increase the exploitation of new mineral resources until declining resources would result in a declining population.

### Alfred Marshall: Market Failures & Government Intervention

Alfred Marshall published Principles of Economics, which was one of the most influential text-books in England during his time (Marshall, 2013). Marshall incorporated more mathematics into economics, and he believed that the purpose of economics was to enhance a society's standard of living. Marshall developed the first supply and demand curves, which described market equilibrium, marginal utility, the law of diminishing returns, and the relationship between consumer and producer surplus. Marshall also distinguished between internal and external economies of scale. Meanwhile, one of Marshall's students, Arthur Cecil Pigou, published Wealth and Welfare in order to describe the manner in which market failures may emerge as a result of inefficient markets and externalities (Pigou, 2014). Pigou was a proponent of state intervention as a means by which to correct these problems. He also described the Pigou Real Balance Effect, which suggested that a rise in unemployment would result in a deflation in prices, which would increase spending and return the economy to equilibrium. However, some have claimed that free market equilibrium has not been effective in restoring balance to economies. Therefore, those such as John Maynard Keynes proposed that injecting money into the economy could be more effective than allowing natural rebalancing (The Concise Encyclopedia, 2008b).

Once more, companies must recognize that the emergence of market failures may be a consequence of company behavior, which adversely impacts the environment or consumers. Therefore, companies that operate a large monopoly must work to ensure that they conduct their operations responsibly and ethically, because the deliberate or inadvertent creation of a market failure may result in government regulations of the industry. Through developing prudent strategies for correcting market failures, companies may simultaneously grow their revenues and avoid government regulation. For example, a fossil fuel company that is primarily responsible for degrading the atmosphere and causing global cataclysmic climate change may avoid costly regulations. They could achieve this objective through simply investing heavily in alternative energy sources, which do not degrade the environment. This ensures that the company is not faced with competition from government-subsidized industries that could disrupt the fossil fuel company's operations. Rather, this provides an opportunity for the company to capitalize upon the need to correct the market-failure of environmental damage.

### The Marginal Revolution

Carl Menger, William Jevons, and Leon Walras are regarded as instrumental in the marginal utility revolution (Menger, Dingwall, Hoselite, & Knight, 2015). Previously, Adam Smith and David Ricardo proposed that labor inputs were the primary determinants of an object's value on the market. Menger, founder of the Austrian School of Economics, rejected Adam Smith and David Ricardo's theories. Menger preferred the subjective theory of value, where both parties to a transaction benefited from exchange. Here, the value of goods was determined by the variable applications of a good, which may change according to the consumer. Leon Walras independently arrived at a similar conclusion, which was that minor changes in preferences may result in fluctuations in the prices of goods, which, in turn, produces changes in the production of goods and services (Walras, 2010). Walras was also known for developing an initial framework for general-equilibrium theory, where any economic system must be in equilibrium so long as all other systems are also in equilibrium.

### The Austrian School of Economics

The Austrian School of Economics was developed in Vienna by Carl Menger, Eugen Bohm von Bawerk, Friedrich von Wieser, and several others (Long, 2015). The principles of Austrian Economics were inspired by methodological individualism - the collective result of the drives and behaviors of large social groups. The Principles of Economics represented the first publication from which the Austrian School developed, which eventually adopted the principles of the subjective theory of value, marginalism, and the economic calculation problem.

The School later divided itself into two additional schools - One led by Ludwig von Misis's theories (free market), and the other led by Friedrich Hayek's theories (government intervention). Misis and Hayek both agreed that government regulation of the money supply was not an effective means by which to influence the economy, because no individual or group of individuals could determine the proper prices of goods and services given the complex nature of the economy (economic calculation problem).

Therefore, a free market would be more effective at regulating prices through supply and demand. However, Misis believed that the essence of the government's role in an economy was limited to enforcing private property rights to the exclusion of every other government service. Therefore, the government would be limited to criminally prosecuting individuals who infringed upon personal liberties. Meanwhile, Hayek believed that government intervention was necessary in order to provide goods and services that were not supplied by the market. This included roads, bridges, public education, healthcare services, and a minimum income.

The Austrian School has proposed that the subjective theory of value governs all economic phenomena, which are primarily psychological in nature. Therefore, developing an understanding of the socio-political results of individual decisions, when taken as a collective, represent methodological individualism. Conversely, other schools of economic thought were influenced by aggregate variables, equilibrium, and social groups. Misis believed that the practice of praxeology could be applied in order to derive a priori principles that are axiomatic to governing economic behavior. Empirical observation of probability and statistics was therefore to be avoided in favor of interior, logical analysis of economic axioms.

### Schumpeter

Joseph Alois Schumpeter was a member of the Austrian School who developed theories on business cycles and innovation (Schumpeter, 2017). Schumpeter emphasized the ever important role of entrepreneurship within economics. Business Cycles: A theoretical, historical, and statistical analysis of the Capitalist process suggested that business cycle theory could account for a variety of economic conditions throughout time. Capitalism would proceed through a period of expansion as a result of innovative inventions and subsequent enhancements of productivity, which invited investment in research and development. Therefore, a lack of opportunity to invest in these new innovations would be followed by the collapse of firms and recession. These recessions would serve as the creative destruction process, where obsolete products and systems would be destroyed, and unemployment would be resolved through the development of new firms, products, and production methods.

Principles of Austrian Economics:

51. 1. Methodological Individualism: Economic events are governed by the behaviors of individuals rather than collectives.

52. 2. Methodological Subjectivism: Economic events are governed by the perceptions and decisions of individuals, given their analysis of their personal conditions and larger market conditions, regardless of whether their knowledge is accurate.

53. 3. Preferences: The subjective valuation of a particular good or service influences consumer demand, which impacts the price.

54. 4. Opportunity Cost: Agents must determine the costs that are incurred as a result of personal decisions to engage with or disregard a potential opportunity (Zera, 2013).

55. 5. Marginalism: The cost, value, utility, and other factors of a specific behavior is deduced from the significance of the last unit added or subtracted from the total.

56. 6. Time Structure of Production and Consumption: Time preferences influence consumption for whether one intends to derive value immediately or in the future. Therefore, savings, spending, and investment are made in order to meet an individual's immediate and long-term demands.

57. 7. Consumer Sovereignty: Consumers may influence the demand for goods and services and therefore their prices. This may be achieved only when supply chains are free of government interference.

58. 8. Political Individualism: Individuals must be provided with complete economic freedom in order to ensure political and moral autonomy.

59. 9. Capital and Interest: The principle that interest serves to allocate capital resources across time (present to future) and serves as an indicator for consumption that is deferred into the future (Bawerk, 2011).

### Theories in Monopoly and Competitive Markets

Edward Chamberlin published The Theory of Monopolistic Competition, and Joan Robinson published The Economics of Imperfect Competition (Chamberlin, 1939) (Robinson, 1969). This produced Industrial Organization Economics, which was focused upon describing the structure and relationships of firms and markets, where internal firm structures and external market conditions may impact industry. Therefore, Transaction costs, limited information, and barriers to entry serve as factors that must be considered when accounting for the means by which a firm may take action within a given market, and Game Theory may address the relationship between competition, monopolies, and government policies. Their publications also produced Experimental Economics, where Game Theory may be classified. These experiments are very similar to simple psychology and social behavior experiments, which may analyze a subject's capacity to coordinate and achieve equilibrium within a Nash style Game.

Games may involve multiple players designed to test how subjects form beliefs, which change over time in accord with standard models of operant learning. Market games, as first construed by Edward Chamberlin and Vernon Smith, observed the behavior of subjects who served as "buyers" and "sellers" in simulated biding environments. These experiments may be applied in order to determine how individuals responded to information, simulated trading events, and withholding information about the value of stocks and bonds (i.e. To study market bubbles). Social preference experiments included the dictator game, ultimatum game, trust game, and public goods game. These games have revealed that individuals are open to behaving in ways that do not serve their self-interest, but rather, fulfill other needs or preferences.

### The Chicago School & Milton Friedman

The Chicago School of Economics, founded by Frank Knight, Jacob Viner, and Henry Calvert Simons, opposed the Keynesian approach to government intervention (Overtveldt, 2009). They preferred a libertarian approach in which the government does not interfere with personal decisions. Ronald Coase published The Nature of the Firm and suggested that the firm existed as a result of their role in transaction costs. Here, the creation of firms enhances the efficiency of transaction costs during engagement with the marketplace.

Ronald Coase also published The Problem of Social Cost, which suggested that transaction costs serve an important role in determining how individuals engage in bargaining to resolve disputes vs. choosing legal recourse. Coase provided the example of a candy maker and a doctor who each share an office, where the doctor complained of excess noise from the candy-maker's machine. Therefore, who should be forced to move? Coase believed that providing legal regulations and judicial arbitration was less efficient than allowing markets to naturally produce opportunities for negotiation. Regardless of whether a judge ordered the candy-maker or the doctor to move, the greater efficiency would have been to allow the two parties to achieve an agreement without government intervention.

Consequently, legal regulations must only be implemented if they are tied to a cost-analysis, and the burden of proof is on the government to demonstrate the benefits of it's regulations.

Finally, Chicago School economists Gary Becker and Jacob Mincer founded the New Home Economics / Family Economics, which addressed the family unit. This new domain of inquiry was focused upon studying the relationship between family structure, fertility, child health and mortality, and quantity vs. quality of children (given investment of time and resources), They also explored theories on altruism, the sexual division of labor, intra-household bargaining, mate selection, search costs, marriage, divorce, imperfect information, intergenerational mobility, the bequest motive, social security, and much more.

### Kenneth Boulding: Psychic Capital

Kenneth E. Boulding published Economic Analysis and founded General Systems Theory (Boulding, 1955). Boulding also utilized the theory of psychic capital, which he believed to be comprised of the accumulation of pleasurable psychological states such as positive memories, experiences of success, social affirmation, etc. Boulding proposed that the accumulation of psychic capital was a strong motivator for human behavior in exchange. Conversely, failure to achieve an objective would result in a depletion of psychic capital, and the accumulated memories of traumatic events constituted the accumulation of negative psychic capital. Boulding also advocated for the development of an evolutionary economics, where he published Economic Development as an Evolutionary System. He explained that:

"Economic development manifests itself largely in the production of commodities, that is, goods and services. It originates, however, in ideas, plans, and attitudes in the human mind. These are the genotypes in economic development. This whole process indeed can be described as a process in the growth of knowledge. What the economist calls "capital" is nothing more than human knowledge imposed on the material world. Knowledge and the growth of knowledge, therefore, is the essential key to economic development. Investment, financial systems and economic organizations and institutions are in a sense only the machinery by which a knowledge process is created and expressed."

### Joseph Tainter: The Collapse of Complex Societies

Joseph Tainter published Collapse of Complex Societies, wherein he described the manner in which civilizations become increasingly complex in order to solve their resource and social problems (Tainter, 1990).

Tainter believed that economies became highly specialized and coordinated through symbolic and abstract communication mechanisms, which produces a new class of analysts to facilitate the flow of communication. However, these analysts do not directly contribute to the development of new resources and growth, so the energy produced by an economy is utilized by these individuals. He also described the means by which the structure of a large society produces diminishing returns on it's level of complexity. Tainter provided Rome as one case study, where their agricultural output was insufficient to sustain their resource demand, so they expanded the empire. This also required that they expand their communication channels in order to maintain their dominance in over resources. Rome was unable to sustain this level of complexity due to repeated invasions from it's neighbors, so it eventually split into multiple smaller societies, which could subsist on their local resources without also subsidizing the larger layers of bureaucracy.

### Bertil Ohlin: Labor vs. Capital Specialization

Bertil Ohlin developed the international free trade Heckscher-Ohlin model (Findlay, Jonung, & Lundahl, 2002). This theorem described international trade conditions, where countries with high levels of capital would export capital intensive goods, and countries with high levels of labor would export labor-intensive goods. Therefore, these two countries would become highly specialized, which would allow larger and smaller countries to engage in trade and complement each other's capabilities.

### Karl Gunnar Mydral: Firm Behavior & Market Effects

Karl Mydral developed the Circular cumulative causation theory, where changes within one institution would lead to consequent changes in other institutions, frequently through cyclical processes that produced negative results (Berger, 2008). For example, a firm that closes it's operations may produce workers who move to a new location for employment, which reduces the capacity for the firm's original locale to collect taxes and provide public services. Next, the displaced employees may increase competition within a nearby marketplace and suppress wages through bidding lower on the limited number of open positions. This, in turn, may suppress the prices of goods and services in that area. Here, a single change within one firm has resulted in a systemic change in other firms as labor moves and resource consumption changes. Mydral suggested that these factors refute the belief that markets are self-correcting systems that tend toward homeostasis - Rather, markets are constantly moving away from a stable equilibrium.

### Richard T. Ely: Government Intervention to Enhance Quality of Life

The American Economic Association was founded by Richard T. Ely. Ely believed that the government was responsible for addressing the problems caused by unrestricted capitalism through improving factory working conditions, providing public education, preventing child labor, and strengthening worker's unions (Bradizza, 2013). However, he opposed state-run economies such as those promoted by Marxists, so free markets remained in their central role for price-setting and free trade. The American Economic Association later became a bastion for economic research, publications, and free thought in the field. The Association grew to over 18,000 members to date and provides an opportunity for professional economists to explore theories without being held to any one political party. The American Economic Review was born and became one of the most prestigious journals in the field.

### John Galbraith: Economic Disparity and Influence on Voting

John Kenneth Galbraith published The Affluent Society in which he proposed that voters who achieve high levels of wealth vote for their own interests and in opposition to the commons (Galbraith, 1998). Consequently, the emergence of big business would require a new interpretation of classical markets. Here, large corporations create artificial demand through investing massive advertising dollars into promoting their products, which biases the consumer market's true needs and preferences. These corporations may simultaneously serve as central planners in order to seek stability of their profits, and they may enlist the government to implement the policies that favor their interests. He preferred socialism in order to nationalize military and healthcare services while regulating prices and salaries (Galbraith, 1976).

Through reviewing these theorists, one may now proceed with a broad review of the current state of the field of economic thought and it's impact upon government policies. The following section is designed to address that which is generally referred to as macroeconomics and microeconomics and the ongoing debate between the Keynesian and Austrian schools of economic thought.

#   

# The Great Debate:

# Austrians vs. Keynesians

## Keynesian Macroeconomics

The principles of macroeconomics are concerned with aggregate behaviors and interactions within broad-based markets. This field is designed to address natural income and output, inflation, deflation, unemployment, consumption, investment, spending, as well as monetary and fiscal policy. Macroeconomics also addresses long term growth of national income, capital accumulation, and labor force expansion and contraction.

The Great Depression of the 1930s catalyzed the development of macroeconomics and resulted in John Maynard Keynes's The General Theory of Employment and Interest and Money. Keynes suggested that the aggregate demand of goods could be inadequate during periods of economic contraction, which would result in high unemployment and a reduction of per capita output. Consequently, the public sector was regarded as a potential solution to unanticipated economic contractions, where the establishment of a central bank and the regulation of monetary policy could stimulate growth. Although perfect markets may naturally reach equilibrium, the rigidity of real markets causes economies to respond to market forces slowly. Therefore, strategic intervention may be applied through tax cuts or stimulus in order to counteract the impact of sudden reduced economic productivity. Those within the Austrian School of Economics suggested that prices and wages adjust automatically in order to generate complete employment. However, the Keynesians regarded employment as intrinsically interdependent with central bank policies.

### Types of Unemployment

The unemployment rate includes workers who are discouraged from seeking employment, retired, enrolled in school, etc. Classical causes of unemployment may include wages that are too high for employers to justify opening new staff positions (minimum wages, union negotiations, price-setting power, etc.). Meanwhile, frictional unemployment may occur when job vacancies exist, but recruiting schedules result in delayed staffing and so prevent candidates from securing a position. Meanwhile, structural unemployment could be linked with a lack of alignment between available workers and required job skills or training. Economies that transition from one primary industry to another (fossil fuels to clean energy) may cause structural unemployment and excessive job vacancies. Finally, cyclical unemployment may occur as a consequence of reduced economic growth, where Okun's law suggests that for every 3% increase in output, an economy will produce a 1% decrease in unemployment. Here, the 2% difference results in distributed profit and utility among the producers and consumers.

### Principles of Inflation

Currency is a medium of exchange, which promotes smooth and efficient trade as opposed to a barter economy, but the purchasing power of currencies may degrade over time.

This is referred to as inflation. This process impacts the cost of goods and services as well as asset prices such as real-estate, stocks, and bonds. Here, producers of goods and services work to sustain their profit margins. Meanwhile, increased consumer wages results in increased capacity to pay for these goods. However, cost-push inflation describes the means by which employees demand a rapid increase in payment for their services in order to sustain their purchasing power.

Inflation may impact the opportunity cost of holding money within a savings account, where failure to invest currency into a profit-yielding business or investment will result in a gradual erosion of the money's value. One measurement of inflation is the inflation rate, which reflects the annual percentage change within the price indices from industry-to-industry (i.e. healthcare, cost of living, foodstuffs, etc.) However, a broad rate of inflation may be determined through a consumer price index, which reflects general inflation rates. The majority of inflation indices are determined based upon assigning weighted averages to the prices of specified commodities. This may result in a distortion of the core inflation rate, because weighting one commodity's relevance within an economic system over another may be imprecise.

The potential solution to this bias is to select all price changes for all markets and determining the median value of those goods (Bryan et al, 1991).

Price indices include the producer price index, the commodity price index, the core price index, and the GDP deflator. The producer price index measures the average changes in the price of goods charged by domestic producers for their supply outputs, whereas the commodity price index measures the price of a specific aggregate of commodities. The core price index measures the core rate of inflation while controlling for volatile commodity indices such as oil and wheat. Through removing the volatility of highly fluid commodity prices, a core price index may reveal the economy's underlying rate of inflation. Meanwhile, the GDP deflator measures the price of goods and services that are included within the gross domestic product. Published by the US Commerce Department, the GDP deflator for the United States is defined as the Nominal GDP / Real GDP.

### Government-Induced Inflation

Central banks may contribute to inflation through designing stimulus policies that produce a rapid increase in money supply (i.e. printing money). Central banks may choose to increase the money supply in response to liquidity traps, where producers and consumers choose to hold their resources in anticipation of future economic uncertainty. These liquidity traps are most acutely observed during recessions, where consumers hold their money in savings accounts rather than engage with the marketplace. Through holding assets rather than purchasing goods, suppliers must reduce their prices and therefore their profit margins on the sale of goods. This reduction in business profit may increase the risk that these businesses will fail. Consequently, the banks (creditors) that sustain these businesses during their quarterly sales cycles may reduce the amount of credit they issue to new or existing businesses in order to reduce the risk of default on new debt. Meanwhile, businesses, lacking in credit, may subsequently terminate employees through lay-offs, which further reduces exchange within the marketplace.

This cycle of liquidity freezing may result in a market failure that halts exchange within a large or small economy. The central bank may respond to these market failures through printing new money, which they provide at a reduced interest rate to their clients (typically major corporations and banks). This is designed to inject liquidity into the economy in order to promote lending so as to avert or reverse a market failure. These measures contribute to inflation, but they may also stimulate lending, hiring, and spending - Restoring the market.

### Problematic Impacts of Inflation

A loss of price-signaling efficiency known as allocative efficiency describes the change in supply and demand for goods, which causes relative prices to change. Here, changes in the inflation rate may become challenging to differentiate from true market signals, which would typically signal buying opportunities. The result is that individuals may fail to respond to true market signals for buying and selling and may result in malinvestment into government-stimulated asset bubbles. Efficiency may also be impacted by shoe leather costs, which refers to the manner in which choosing to hold money within an account that accrues interest may result in a loss of efficiency due to the repeated transactions required in order to make liquidity available for market transactions (i.e. trips to the bank, liquidating stocks, etc.). Menu costs describe the way in which firms change their prices in order to sustain their margins alongside other firms.

The cost of adjusting the prices in response to changing inflationary conditions may further result in a loss of efficiency due to resources that are allocated to maintaining accurate prices rather than transacting business with other entities. According the Austrian Business Cycle Theory, Business Cycles may be adversely impacted, because artificially low interest rates and increases in the money supply may result in risky and reckless behavior by financial institutions and other firms with access to inexpensive credit (Holcombe, 2014).

### Inflation and Stickiness of Wages

Through the gradual increase in the price of goods, the stickiness of wages may adversely impact price-setting and purchasing power across a variety of markets. For example, inflation in the cost of real-estate may occur rapidly as a population of college graduates within a small county secure long-term and stable employment opportunities, and the demand for real-estate rises rapidly. Here, the first consumer to enter the market and purchase property will have secured a new asset that will soon appreciate rapidly in value. Meanwhile, an individual from the same company who earns the same wage may choose to enter the market 12-months later and pay a 15% higher rate on a comparable property. Here, the real-estate market sets the price, but wages remain consistent. Meanwhile, the real-estate asset-price inflation rate is subject to bubbles and may rise more rapidly than employee wages.

### Inflation's Degradation of Retirement Investment Vehicles

Another example is an individual that purchases an annuity, which provides a guaranteed, fixed income for their retirement. Here, one may pay a monthly or annual premium for the right to claim an agreed-upon income in 30-years into the future in exchange for an equivalent and proportional premium at the present days' current price index. However, 30-years of inflation erodes the utility of that purchase in accord with the national rate of inflation. Meanwhile, another individual who purchases a broad-based stock on the S&P 500 may secure a greater future return than the fixed annuity, because these companies are strong price-setters. These price-setters are therefore partially responsible for inflation within the market-place, as they increase their profit margins. Provided that these price-setting companies remain solvent and profitable, the return on investment would exceed the rate of inflation and produce a higher yield than the fixed-annuity purchase.

Meanwhile, rapid inflation may disrupt a business's capacity to plan for long-term growth as the value of their goods remains consistent, but the value of the currency fluctuates unpredictably. Moreover, high rates of inflation may cause producers and consumers to be rapidly pushed into higher tax brackets unless the tax rate is linked to inflation. Those who have purchased the right to claim annuities or other forms of fixed income (social security, pensions, etc.) will lose purchasing power as the inflation progresses. Inflation may also contribute to international trade challenges, where inflation within one country is not reflected in the international exchange rate (as with fixed exchange rates). Here, inflation in one country may cause the goods of another country to become more expensive, which increases one country's leverage over another.

### Positive Benefits of Inflation

Keynesian economists believe that inflation may produce positive benefits to the labor market. Due to the tendency for wages to adjust downward in response to market conditions, high unemployment levels may persist during recessions. However, inflation allows the real value of wages to drop when nominal wages remain consistent, which may increase employment through reducing the real cost of wages. Meanwhile, central banks may achieve room to maneuver and respond to market failures through regulating inflation rates to enhance the velocity of money in the economy. The central bank may discount interest rates to the broader banking system, which may stimulate lending for the growth of new businesses, hiring, and demand for goods and services. Robert Mundell has also suggested that modest levels of inflation encourages savers to engage in growth-stimulating exchange and investment, because holding their assets in savings accounts depreciates the utility of their currency. Furthermore, S.C. Tsiang has suggested that encouraging inflation may be beneficial so as to regulate prices throughout the market. Those who anticipate deflation may begin holding their money as it's value rises (rather than lending). This could suppress economic growth and trigger a recession. Therefore, stable inflation ensures that money is not hoarded, but rather, circulated throughout the economy.

### Controlling Inflation Through Monetary Policies

Governments and central banks may design and implement unique monetary policies, where interest rate and money supply growth rate may impact inflation rates. Symmetrical inflation targets may be explicitly or implicitly utilized in order to trigger specific policy actions in response to inflation rates that rise or fall below a pre-determined threshold. Central banks typically hold their lending rates to low levels (2 - 3% annual interest rates) with minimum and maximum inflation rate targets of 2 - 6% (inflation minimums are maintained in order to prevent the potential problems associated with deflation). Through raising interest rates, money supply is reduced, because loans are not as attractive to consumers, which prevents banks from creating new money to furnish the loan. Keynesian fiscal policy may be utilized in order to increase aggregate demand during recessions (i.e. stimulus spending or tax credits to finance construction projects) and reducing aggregate demand during expansion cycles (halting public spending and tax credits).

### Controlling Inflation through Monetary Standards

Fixed exchange rates may be utilized in order to link the value of one country's currency to a group of other currencies or gold. Fixed exchange rates may stabilize the value of a country's currency in terms of both exchange value and inflation. However, if the value of the other currencies or gold change, the nation's currency will also change, so external influences upon those "standards" must be monitored. The gold standard represents a country's decision to link the value of their fiat currencies with the value of gold, where each note may be redeemed for the equivalent value in precious metals. The printed fiat currency holds no intrinsic value, but large enough groups of traders may accept these currencies as a medium of exchange so as to imbue the fiat with value. This is due to their government's agreement to provide precious metals in exchange for the fiat at any time. Typically, the success of wage and price controls has been limited to brief periods of war, where rationing was critical for providing resources to the military.

Typically, price and wage controls trigger resource rationing and reduce long-term investment, because long-term margins may not yield a significant return on the margins. Rationing and reduced investment in future production may trigger supply scarcity, where commodities such as food may be underpriced and over-consumed.

## The Austrian School of Economics

According to the Austrian School of Economics, inflation is caused only by the increase in the quantity of money, and the presence of inflation is universally problematic.

According to Friedrich Hayek: "And since any inflation, however modest at first, can help employment only so long as it accelerates, adopted as a means of reducing unemployment, it will do so for any length of time only while it accelerates. "Mild" steady inflation cannot help--it can lead only to outright inflation. That inflation at a constant rate soon ceases to have any stimulating effect, and in the end merely leaves us with a backlog of delayed adaptations, is the conclusive argument against the "mild" inflation represented as beneficial even in standard economics textbooks" (Hayek & Hanson, 1984, p. 22).

The Austrian School further expounded upon the problems of government regulation through describing the Economic Calculation Problem. According to Mises's work, "Economic Calculation in the Socialist Commonwealth", government regulated socialist economies were not capable of accurately calculating the best prices for goods, services, or money (rate of inflation), because these objects were unlinked from their natural market prices when controlled by government legislation. Therefore, these products became intrinsically unpriced, so the regulated market could not accurately calculate the value of the resources and the means by which to allocate them efficiently.

The Austrian School also held that banks issue credit according to market derived information regarding risks and investment opportunities, which results in proper economic flux. However, Keynesian regulated central banks may provide credit at artificially low interest rates, which may result in a supplier's inefficient allocation of resources and malinvestment. That is - The money is too easily acquired and so cannot be accurately valued and invested for long-term investment and business planning.

Once banks provide loans at artificially low interest rates, businesses may invest in growth without ensuring that their systems are efficient. Therefore, they are more likely to engage in risky strategies that do not optimize their growth and margins. Therefore, the more prolonged a low interest rate environment, the more prolonged the malinvestment, and the more volatile the future economy once the markets respond to the inefficiencies that resulted from inefficient investment behavior. Therefore, interest rates must be determined through the time preferences of the individuals within an economy (i.e. the degree to which individuals and firms value present-moment expenditures vs. saving and investing for future events). Through providing government regulated credit that does not consider the time preferences of individuals, systemic miscalculations are introduced into the economy.

The Austrian School holds that governments cannot continue these policies without long-term market corrections. Therefore, markets will naturally re-establish the original relationship between current and future supply and demand during recessions. Consequently, recessions are regarded as a natural part of the business cycle adjusting for economic miscalculations. Therefore, expansionary monetary policies may exacerbate recessions, because economic miscalculations are multiplied by easy access to government regulated credit, which does not effectively evaluate investment risk.

Companies must recognize that the Austrian School of Economics broadly favors the deregulation of businesses for the creation of a truly free-market. However, one must also recognize the challenges and limitations of the Austrian perspective, where corporations may implement policies that adversely impact the environment or society without remedy.

Therefore, the public's only mechanism for resolving potential corporate abuses of the market and the environment turns to government. To avoid government regulation, companies must strive to ensure that they correct market failures prior to witnessing the passage of legislation that regulates their industries and potentially harms their business interests.

Removed: Paragraph Keynesian Economics & Corporate Regulations

### Milton Friedman and Contemporaries

Milton Friedman, of the Chicago School, is regarded as one of the most influential economists of the 20th century, and he published A Monetary History of the United States and Capitalism and Freedom (Ebenstein, 2012). Milton Friedman and proponents of the Chicago School and Austrian School were similar. They believed that Keynesian economic policies and the Federal Reserve's behavior precipitated the Great Depression, so the free markets are actually preferable to government intervention. He explained that the government should only concern itself with gradually increasing the money supply over time rather than injecting stimulus into the economy as business cycles unfold. He is also well known for the Permanent Income Hypothesis, which suggested that consumers spend a proportional amount of their perceived permanent income, and they save windfalls. He also offered a review of the Phillips Curve and the natural rate of unemployment.

Robert Lucas founded New Classical Macroeconomics, which incorporated Milton Friedman's preference for the John Muth's rational expectations theory, which opposed government intervention (Lucas & Gillman, 2013). Lucas believed that rational expectations must be incorporated into dynamic models of general equilibrium with regard to future prices. He believed that these rational expectations about future events were designed to maximize utility within an individual's economy. Lucas also proposed the Lucas aggregate supply function, which was also known as the Lucas surprise supply function, and this was based upon the Lucas imperfect information model.

The model suggested that economic output was linked to surprise changes in money and price. This model was integrated into the policy ineffectiveness proposition, where monetary policy is regarded as generally predictable, so the market will price-in any systematic changes to monetary policy. For Lucas, the lack of "surprise" changes in monetary policy by governments impedes their ability to systematically influence markets. Lucas also proposed the Lucas Paradox, where he observed that capital located within rich countries does not flow into poor countries. Although the poor countries should be regarded as the best places in which to invest due to the growth potential, this does not occur. He believed that his could be explained through the following:

  1. A. The amount of capital dedicated to investing in poorer countries may be a result of limited means of production, technological limitations, adverse government policy, and differences in organizational structure.
  2. B. Developing nations are at greater risk for the nationalization of private equity and a lack of information to prepare for such events. Therefore, these less developed countries, while providing high potential growth, are also highly uncertain environments.

Meanwhile, John Muth formed the foundations for the modern rational expectations theory, which is distinct from rational choice theory and does not suggest individual rational decision making (Sargent, n.d.). The model presumes that individuals are each possessed of their unique models for processing information about present and future economic variables, and they are correct, on average, over the course of time. Therefore, most people are not systematically biased about their predictions.

That is, errors that deviate from correct predictions about future events are random rather than structured. This contrasts with adaptive expectations, where individuals would always underestimate inflation due to government policies or that people would never overestimate inflation (such biases would be regarded as systematic) (Chow, 2011).

Consequently, he agreed with Lucas that systematic government intervention could not systematically influence markets - Rather, the markets would price-in changes made through monetary policy. Paragraphs Merged Finally, Alfred Eichner agreed that investment was the foundation for strong economic growth rather than Keynesian-style government spending. He believed that supply and demand were not the core causes of price-setting within an economy, but rather, mark-ups designed to increase profit margins were the price-setters.

## Strategies for Integrating Economic Theory & Adapting to Market Fluctuations

Companies must recognize that the United States economic system is currently regulated by a Keynesian model of policy-making. Therefore, corporations must ensure that they are capable of adapting to the variety of policies that are constantly impacting market behavior throughout the nation. First, corporations must ensure that they are familiar with interest rates and the degree to which high or low interest rates may result in broad access to inexpensive capital vs. the potential risk of malinvestment. Through making inexpensive capital available throughout the economy, many corporations may find their industries have become subject to artificial boom and bust cycles. One must learn to determine when low interest rates are stimulating an artificially strong boom cycle, where the value of goods and services may rise rapidly, but fall precipitously upon the market's discovery of a government-induced demand glut.

One example is the mortgage crisis of 2007, which resulted in the Great Recession (Duca, 2013). This event was precipitated by public and private sector policies that were designed to provide easy access to loans for purchasing homes. During the preamble to the Great Recession, banks issued loans to nearly anybody who submitted an application, and the result was a surge in demand for homes. This artificially drove the price of homes higher, stimulated new construction, and increased construction hiring. Consequently, a large number of new home owners entered the market with massive loans that they were unable to repay, and the construction industry's production was built upon false demand signals. Meanwhile, the ownership of these mortgages were constantly trading hands from one bank to another through "mortgage backed securities" (i.e. Stocks).

Therefore, once mortgage holders defaulted on their loans in a mass foreclosure crisis, the price of homes dropped precipitously, the construction industry engaged in mass layoffs, and mortgage-backed securities dropped in value, introducing volatility into the stock market. The massive losses incurred by banks that held the mortgage-backed securities resulted in a sudden contraction in the supply of credit within the economy, and banks stopped issuing new loans for businesses. Consequently, the entire economy slowed as new businesses were unable to secure credit to launch their ventures, and existing businesses found they were unable to continue operating with their current lines of credit. The velocity of money in the economy slowed, reducing economic growth, and producing massive unemployment. Companies within the finance and mortgage industry could have anticipated this through monitoring government stimulus policies, interest rates, and the potential industries that would be adversely impacted. Final sentence deleted

The government's response to this crisis was to purchase the toxic mortgage-backed securities in order to relieve the banks of the burden of their faulty investment practices. Meanwhile, the government simultaneously invested into infrastructure development so as to enhance demand for construction labor - A key economic indicator. Keynesian economists believe that this prevented the Great Recession from becoming another Great Depression, but Austrian economists believe that this has prevented a critical learning experience from occurring and only delayed a subsequent market failure to come.

One example of a future market failure is present within the field of higher education, which is government driven. The cost of higher education has risen astronomically, because student loans are available in nearly unlimited supply. The fixed number of universities coupled with a nearly unlimited government-driven demand for university services has naturally resulted in a massive increase in prices. This has simultaneously resulted in a huge increase in university revenues with a concomitant expansion of capacity through building new classrooms, stadiums, exercise facilities, and purchasing new acreage. Much of this increased development may also be financed with loans, which may be repaid contingent upon the university's continued access to students with government backed loans. However, the total number of individuals with higher education has grown dramatically, thereby suppressing the actual value of the service.

Therefore, once the market discovers that a university education is no longer possessed of sufficient value to justify the expense or the government ends the student loan program due to high rates of default, universities may discover that demand suddenly drops as a generation of high school graduates choose to enroll in vocational programs rather than institutions of higher education. This may result in a sudden contraction in the demand for university services, and the universities may default on their loans, which were originally utilized to finance the expansion of their facilities. These universities may consequently be foreclosed upon and close their doors.

This is one way in which to perform an analysis of the way in which government-powered demand may result in malinvestment and disrupt the stability of an industry. Therefore, human capital managers must ensure that their executive team and board are prepared to monitor the potential impact of government-powered boom cycles could result in profound economic consequences for an institution.

### Conclusion

Companies require a systematic review of (1) the origin of markets, (2) the behavior of individuals within organizations and economies, and (3) compliance practices. The following sections will include a brief review of best practices in human capital management and compliance. Final Paragraph Removed

#   

# Practices in Human Capital Management

## Company Objectives

The first step in designing a human capital management strategy is to ensure that the company's mission and vision have been developed (Mackey & Sisodia, 2014). This may be accomplished through reviewing the company's core objectives with the founder and executive team, but this must also be extended to include the management team and operational staff. Through ensuring that all members of the organization have developed a clear vision for the company, one may begin developing the company's human capital and workforce model. The reason that the mission and vision are critical to the organization is because this is the fundamental reason, purpose, and function for the company. The objective of simply 'making money' is not sufficient. Rather, the objective must be derived from a set of values and an interest in solving problems within the market.

The fundamental objective of any organization with a rational purpose for existence is to solve a problem that exists within the market place. For example, the market demands food, water, and shelter, but individuals may not have the technical capabilities to secure stable access to those resources through building a system of wells and pipelines. Therefore, an individual or group (i.e. a 'company') may decide that they would like to contribute to society through delivering food, water, and shelter to the market in exchange for fair market compensation (i.e. trade). The individual or group may be possessed of a high level of expertise and interest in the field of utilities, so this may serve as a natural subject of interest for this group of individuals to engage with the market. Naturally, the members the company will require sustenance of their own, so money becomes a means by which to secure resources as well - Not an end unto itself.

The free market displays a wide variety of expertise and interests, which range from individuals and organizations that are naturally drawn to produce scientific discoveries, mechanical innovations, medical treatments, utility services, food services, executive leadership, management, operational functions, and much more. The large variety of expertise, intelligences, and interests that emerge within an economy results in a complex and highly coordinated system of interactive markets, goods, and services within the environment (Gardner, 2006). Through applying these specialized skill-sets, one may develop a clear mission and vision for solving a problem within the market.

HR Checklist:

60. 1. Founders and Executive Team have a personal a purpose, mission, and vision to serve the market and solve a problem.

61. 2. The purpose is anchored in a high value vision for self-development and contribution to the world.

62. 3. All members of the organization are also engaged with the mission and vision of the organization.

### Workforce Planning

The planning of a work-force requires that the company determine the best means by which to achieve it's objectives (Mitchell & Gamlem, 2017). The standard means by which to conduct a work-force needs assessment is to ask the following questions:

63. 1. Vision: What are the company's objectives?

64. 2. Strategy: What are the human and mechanical capabilities that are required to achieve this objective with the current budget?

65. 3. Massive Action: Execute.

### Non-Profit vs. For-Profit

The primary difference between a for-profit or non-profit organization is that for-profit organizations may be grown and developed into a significant asset value, which, when sold through stock acquisition (to benefit the private owners). Alternatively, non-profits may not be privately owned and sold in this manner. However, this should be irrelevant to the subject of work-force planning. The most significant difference is that for-profit organizations are privately owned for the purpose of being capitalized upon by the owners through stock sales.

Many develop the erroneous belief that an organization must be categorized as 'for-profit' if it is to be operated for the benefit of it's founders at the expense of the market (i.e. the company exists to exploit consumers). Meanwhile, others may develop the erroneous belief that their organization must be categorized as 'non-profit' if it is to benefit the market at the expense of the founders and the organization's members (i.e. the company exists to serve the world). This dichotomy is not accurate: Both for-profit and non-profit organizations are possessed of the same set of basic needs: Secure access to survival resources, relationship development with staff and the market, significance of purpose, knowledge and meaning, growth, higher values, and self-transcendence/existential purpose. Failure to meet any category of these needs, and both the for-profit and non-profit organization may fail to achieve their missions and visions. This would result in the ultimate collapse due to lack of proper resource management.

HR Checklist:

66. 1. Recognize that For-Profit and Non-Profit organizations each exist to serve the world.

67. 2. Conduct a survey to determine whether the organization is meeting it's individual and collective needs.

68. 3. Proceed with enhancing the company's service offerings and financial stability.

### Recruiting

The purpose and function of recruiting is designed to attract the most high quality candidates for a particular position within a company in order to maximize company performance. The first objective when recruiting talent is to ensure that the individual's personal mission and vision for their lives is congruent with that of the founders and executives (Mackey & Sisodia, 2014). Through ensuring that the individual's interest in the company is primarily intrinsic rather than extrinsic, the organization may ensure that the individual is primarily interested in contributing to the organization's mission and vision rather than simply extracting financial compensation for themselves. The next step to recruiting must ensure that the candidate has demonstrated successful academic or practical professional development in a related domain (Mitchell & Gamlem, 2017). Through ensuring that academic development has reached a high degree of completion, reading, writing, and comprehension skills are virtually guaranteed. However, modern academic training has been subject to standardized testing, which primarily trains reading, comprehension, and memory - Therefore, critical thinking skills may not be present. Consequently, the candidate must demonstrate prior practical skill development training, particularly with an emphasis upon the progressive development of their problem solving capabilities. Duration within a particular position may be one indicator for determining a candidate's core skills and competency. However, this may represent a limiting metric, because duration of service does not necessarily correlate with high levels of engagement and professional development - Duration is not a sufficient metric to determine competency. Therefore, candidates must be evaluated based upon evidence of contribution to the organization through achieving measurable objectives. This may include progressive gains in cost-mitigation, growth in market share, growing positive feedback from customer service initiatives, etc. This ensures that the candidate may bring continued growth and development to the hiring company's organization.

HR Checklist:

69. 1. Hire individuals with high levels of academic performance.

70. 2. Verify that high levels of academic performance are accompanied by practical professional development.

71. 3. Duration of service within a profession must be disregarded in favor of completion of measurable objectives during service.

### Job Descriptions

Job descriptions are designed to ensure the the organization has verified the type of roles and responsibilities that are required in order to implement the executive team's objectives (Mitchell & Gamlem, 2017). During the early stages of a company's development, job descriptions may not exist, because founders are responsible for a variety of roles. However, once organizations develop into a higher level of specialization among workers, job descriptions are required. This is designed to specify the best means by which to achieve objectives within niche domains of practice as well as to remain compliant with federal and state regulations. Job descriptions must include a summary of the position, required academic training, prior experience, and skills. Next, this must include a list of roles, responsibilities, and daily, weekly, monthly, quarterly, and annual tasks. Through ensuring that the organization has specified these roles and responsibilities, the executive leadership team and other members of the organization may specialize within their domains and enhance productivity.

Job Descriptions must be compliant with the Equal Employment Opportunity Commission and the Americans with Disabilities Act, which prohibits discrimination based upon race, color, religion, sex, gender identity, sexual orientation, pregnancy, national origin, age (40 or older), disability or genetic information.

HR Checklist:

72. 1. Job Title.

73. 2. Summary.

74. 3. Tasks: Daily, Weekly, Quarterly, Annual.

75. 4. Minimum Requirements: Prior Academic Experience, Prior Professional Experience.

76. 5. EEOC and ADA Compliant.

### Hiring from Within and Outside

Hiring staff from within presents a variety of unique opportunities and costs (Mitchell & Gamlem, 2017). The first opportunity presented through hiring from within is that the organization ensures that training time and learning curve are minimized. This is due to the preservation of institutional knowledge of operational processes. The second opportunity this presents is a minimization of risk that internal candidates will present unanticipated personality problems, because the individual has already demonstrated their personality characteristics during prior work within the organization.

However, hiring from within may cost the organization resources as a result of doubling the amount of cumulative training for new positions - The internal candidate will require training on their new role, and their replacement will require training on the internal candidate's vacated role. Therefore, hiring from within does not necessarily resolve the problem of recruiting a new team member - Rather, the net gain in time and efficiency of training may be near 0. Moreover, hiring from within may present challenges as new social relationships are established within a social hierarchy. Here, a team member who excelled at a mid-level position and collaborated with their team members may undergo a personality change if they are moved into an authority figure's leadership position with a new hierarchical reporting structure.

Meanwhile, failing to hire from within may result in the loss of long-term staff, because an organization that does not provide opportunities for advancement is not an appealing proposition for talented individuals who would like to enhance their skill-sets and grow within the organization. Therefore, failing to hire from within may result in a loss of staff, more positions to fill, and a general lack of engagement within the organization. Individuals may be less interested in contributing to the growth and development of the organization if the company does not provide reciprocal opportunities for growth and development.

Hiring external team members may be required if the internal candidate pool does not present sufficiently well developed candidates or if critical positions cannot be vacated for advancement and filled quickly. For example, a highly talented engineer who is interested in an executive role may be best compensated with a raise and upgraded title rather than a full abandonment of their role, particularly if their skill-set is very unique and challenging to recruit. This scenario would necessitate an external hire for the executive role, and the candidate must be integrated into the company structure efficiently (See on-boarding).

HR Checklist:

77. 1. Ensure that the Internal Candidate is actually qualified for the position, and they have not advanced as a result of rapport development alone.

78. 2. Verify whether selecting an Internal Candidate results in double training - Once for the promotion, and once to replace the internal candidate. If this is the case, determine whether the benefits exceed the costs.

79. 3. Consider whether the company provides sufficient opportunities for advancement for talented team members.

### Interviews

The interview process may range from simple to complex depending upon the size and needs of the organization as well as the capabilities of the candidate pool. Small companies that require highly skilled labor may simply review a candidate's academic qualifications (GPA, coursework, projects), professional experience (prior companies, results, projects), and basic personality characteristics. Meanwhile, larger organizations may require an extended interview process.

Typically the interview process requires three major stages:

80. 1. Telephone screening: This element of the interview process is designed to determine whether the candidate is capable of presenting themselves professionally and develop rapport with the recruiter. The standards are fairly simple: The candidate must call in or answer the call on time, speak coherently about their professional development process, and demonstrate the capacity to engage in a positive and competent manner.

81. 2. On site screening: This element of the interview process is designed to further review the candidate's professional presentation, their body language, eye-contact, affective regulation (i.e. smiling and friendly), and their capacity to perform well when subjected to sustained interrogatories about their history of professional development.

82. 3. Final interview: The final interview is typically reserved for the select few candidates whose professional interests, capabilities, and rapport development skills have matched the needs of the hiring manager and the direct supervisor. Typically, the supervisor conducts the final interview and makes a decision regarding whether to make a job offer. However, other organizations may extend the interview process to include team interviews, meetings with members of the executive leadership team, and others.

HR Checklist:

83. 1. Telephone screening.

84. 2. On site screening.

85. 3. Final interviews with hiring manager / Team Interviews.

### Job Offers

Human capital managers must ensure that they have secured at least 2-3 options for their preferred candidates, because applicants typically receive multiple job offers with which the company must compete. The company must offer a position with a compensation and benefits plan that meets or exceeds the fair market compensation rates available through other companies for comparable candidates of equivalent professional experience. To secure the best talent, organizations may need to increase their compensation plans so as to ensure that their preferred candidates accept the company's offer. Job offers must also be EEOC compliant so as to avoid discriminative hiring practices, and some companies may be required to implement affirmative action programs (See HR Compliance section for more details).

HR Checklist:

86. 1. Hiring managers must select a minimum of 2 - 3 preferred candidates - 1st, 2nd, and 3rd.

87. 2. Financial compensation must meet or exceed other companies of similar size and candidates with comparable professional experience.

88. 3. Fringe benefits must meet or exceed that of other companies.

### Compensation & Benefits

Smaller companies with lower budgets may need to offer compensation and benefits that are unique and appealing to the highly skilled candidate - Particularly if the market-rate for their services exceeds the company's budget. Small budget organizations must shore-up deficiencies in their limited budgets through offering a very attractive mission and vision, opportunities for advancement, high quality work-place culture, and flexible working arrangements when possible (i.e. work remotely, etc).

Meanwhile, moderate sized and large sized companies may focus primarily upon offering high levels of traditional compensation and benefits such as market-rate or higher salaries, healthcare plans, retirement plans, etc. These organizations may provide higher salaries but lower quality mission and vision, work-place culture, rigid working arrangements, and limited opportunities for advanced titles. These companies may compensate staff with higher salaries, because they have become the dominant players within their markets with near monopolies. Through securing their market position, they may naturally acquire higher levels of revenue with less compelling missions and visions and other critical features of an inspiring organization. For example, fossil fuel companies, which are highly lucrative due to international dependence upon their products, but a bankrupt standard of ethics and a mission and vision, which is catastrophic at best. These companies must counteract the lack of a compelling mission and vision through providing higher levels of financial compensation.

HR Checklist:

89. 1. Small companies: Offer opportunities for advancement, flexible hours, remote work options, and other supplemental benefits.

90. 2. Large companies: Compensate candidates financially at and beyond market-rates, offer healthcare, retirement plans, and other supplemental benefits.

### On-boarding

The on-boarding process represents a critical first step in ensuring that the organization and the new hire form a positive working relationship during the first 90-days and beyond. The process is primarily designed to assist the new hire with developing professional relationships with their primary departmental work group and other departments with whom they interact. This must be completed within the first 48-hours of the first day of work in order to ensure that priorities are set, communicated, and training begun. Next, other members of the organization must meet with the new hire in order to ensure that the company recognizes and welcomes their new team member. Simple walk-throughs and brief introductions are not sufficient to form positive working relationships across all members of the organization. Therefore, the HR department must structure a more personalized opportunity to meet with members of the organization through an explicit welcoming ceremony. This ensures that the individual leaves a positive first impression upon the entire group, and they feel welcomed into the community rather than simply tossed in with their department and expected to forge their own path. Although individual activity is a core component of successful integration, the HR department must ensure that the welcoming ceremony is conducted quickly and professionally.

HR Checklist:

91. 1. Complete introductions within 48-hours of first day.

92. 2. Personalized introductions with executives and team members.

93. 3. Design and implement a welcoming ceremony.

### Staff Recognition and Retention Programs

Staff recognition and retention programs are critical for ensuring that the individuals and groups that comprise a company are valued and affirmed during their work with the organization (Conley, 2017). Therefore, the HR department must design and implement programs that express the company's appreciation for the staff's contribution to the organization both during on boarding (welcoming ceremony), on the first month anniversary of the new hire, and on the annual anniversary of the new hire. These represent the core components of a long-term staff recognition program, which ensures that members of the organization are acknowledged regularly. However, this is only the first step.

Next, the organization must implement quarterly recognition programs, which may specifically value and affirm their team's contributions through gifts, tokens of appreciation, and financial bonuses. Finally, the HR department must provide a system by which to track and monitor rewards on a monthly basis in order to incentivize good behavior throughout the year. Through ensuring that Department Heads are frequently recognizing their staff on a monthly basis at minimum, the most fundamental needs for staff recognition and appreciation are met.

Meanwhile, the organization that chooses to implement the most effective staff recognition programs will incorporate this behavior into the daily and weekly work-flow. Rather than awaiting a monthly, quarterly, or annual recognition, staff must be trained to provide each-other with consistently positive written and verbal recognition when they achieve key objectives. This must be implemented in order to ensure that staff engagement remains high.

HR Checklist:

94. 1. Staff recognition during on-boarding.

95. 2. Staff recognition daily, weekly, and monthly.

96. 3. Staff recognition during 1-month anniversary.

97. 4. Staff recognition during 1-year anniversary.

### Staff Development (Objective, Implementation, Reviews)

Human capital development programs must be designed with clear and measurable objectives for the growth of the organization. Therefore, staff development must be implemented alongside that of the organization's growth. The objective of most organizations is to maximize market-share, which requires that the company grow into new divisions of labor. Specialization of skills for each role must range from from the executive level to division leadership, management, and general labor teams as the company multiplies in size and complexity. Each new hire must be regarded as a future leader within the organization in order to ensure that growth continues smoothly.

The mission and vision of the organization must be clearly defined and actively implemented throughout all levels of the company in order to implement a program that develops the organization's potential. Once this mission and vision have been clarified, the next step is to inform the staff of these objectives and implement training programs that will clearly and measurably enhance the staff's capabilities. The HR Department must assume a lead role in designing and implementing these programs, because HR typically impacts every member of the organization through annual reviews and the administration of company policies and procedures. Through integrating staff development training programs into the company, quarterly boot-camps may be developed or purchased for executives, sales teams, customer service teams, IT professionals, engineers, legal professionals, medical professionals, and others.

HR Checklist:

98. 1. Design and implement a professional development program.

99. 2. Implement training bootcamps every 90-days.

### Conflict Resolution

The HR department is responsible for ensuring that the organization's communication patterns are optimized in order to enhance work-flow (Mitchell & Gamlem, 2015). Therefore, HR must address conflicts that arise within the work-place through preemptively developing an effective staff development and communications program. Through ensuring that staff are consistently trained to provide positive feedback to their colleagues throughout their days, weeks, months, and years of employment, the majority of conflicts may be resolved before they begin. However, the nature of organizations is that of constant change, and individuals respond to change in accord with their previous conditioning from childhood, college, and throughout their adult lives.

The vast majority of conflicts originate from early childhood experiences and traumas, where an individual felt unseen, unheard, or mis-understood by their parents, family, or society at large (Freud, 2016). These deep psychological wounds may re-emerge within the organization, where a supervisor may come to be perceived as a parental figure, and colleagues may be seen as brothers and sisters or adolescent peers. This process is referred to as psychological transference, wherein prior relationships begin to impact the manner in which an individual perceives present relationships. Therefore, a supervisor's lack of recognition and affirmation may appear to be benign and innocuous to the group, but one individual's unconscious memory of an early childhood experience may trigger a strong internal response to the event. Repeating this behavior throughout several days and weeks may result in the individual developing strong feelings of pain associated with working with the supervisor, which must be resolved through self-reflection and interpersonal communication. This must result in either a positive resolution with their supervisor or a departmental transfer if the conflict is not resolved. The HR team must remain actively engaged with work-force self-awareness, communication, and conflict resolution in order to ensure that the organization's human capital is performing optimally both intrapersonally and interpersonally. Therefore, the HR department must ensure that all members of the organization are trained to recognize these patterns and respond appropriately. These trainings must be provided every 90-days in order to enhance learning and skill development, and they must be conducted with a trained conflict resolution specialist. Trainings must include both basic sexual harassment, work-place discrimination, and EEOC guidelines, but they must also include training on human psychology, physiology, and communication strategies.

HR Checklist:

100. 1. Staff are trained in human behavioral psychology and physiology communication patterns, every 90-days.

101. 2. Staff are invited to engage in conflict for resolution with a trained conflict resolution specialist.

102. 3. Staff are transferred and reassigned if required.

### Performance Reviews

Performance reviews must be designed to integrate the principles of scientific management, theory X & Y, and systems theory/contingency theory perspectives on monitoring and enhancing worker engagement (Taylor, 1972) (McGregor, 1957). Standard performance reviews may apply the scientific management model so as to include a review of key metrics that are established within the company's job description, which could range from an executive's performance in expanding business operations, profits, stock valuations, or mitigating losses during an economic contraction (Mitchell & Gamlem, 2017). Performance reviews may also be designed to address Theory X models, which integrate compliance with company policies regarding interpersonal behaviors such as capacity to work within a team, responsiveness to communications, professional decorum, ethics, and other pro-social characteristics. Systems theory and contingency theory models may also be implemented through securing feedback from other team members regarding how they express these characteristics. Furthermore, one may integrate Theory Y models so as to review the subjective psychological perspective of the individual (i.e. engagement with work, interests, preferences, and suggestions for how to enhance their personal engagement and performance).

Therefore, performance reviews must consist of four primary elements, which include (1) objective performance metrics (2) review of pro-social behavioral characteristics as determined by the subjective review of a supervisor and team members, (3) review of the interior psychological perspective of the individual, and (4) opportunities for collaboration on modifying their job description, systems, processes, and objectives.

This system integrates a scientific management perspective (objective metrics), theory X management perspective (reviews of management's perspectives), systems theory and contingency theory (inputs from the environment), and theory Y management perspective (collaborative self-review and collaborative revision of role and function).

HR Checklist:

103. 1. Objective performance metrics.

104. 2. Subjective supervisor review of performance.

105. 3. Team review of performance.

106. 4. Subjective collaboration and revision of role and function for maximum engagement.

### Termination

Termination procedures may be applied due to voluntary retirement, performance management problems, or team members looking for other opportunities that best match their professional development interests. The termination of an employee must be completed professionally, ethically, and with attention to EEOC guidelines (Green, Ryan, & Levy, n.d.). Voluntary retirement or resignation is a simple process, which includes selecting a reasonable time-frame for the individual to leave their position to be replaced with a new candidate. Once the time-line has been established, the departing employee may provide the company with a codified review of their institutional knowledge so as to enhance the efficiency of the transition.

Through ensuring that the retiring employee develops a training manual for their incoming replacement, critical knowledge and efficiencies may be preserved. Once the departing employee's training manual has been completed, some companies may be provided with the opportunity to recruit a new team member either internally or externally, or to apprentice under the retiree. This further ensures that skills and knowledge related to the position are transferred to the new hire smoothly. Typically, employee retirement provides a significant period of lead time in which to recruit a replacement, but unanticipated voluntary resignations may occur with limited notice. Regardless, short-notice resignations must also be addressed through ensuring that departing employees may codify the skills and knowledge they developed through a training manual or check-list. If possible, a new recruit may also apprentice under the departing employee.

Terminations that are involuntary must be handled with greater care than voluntary resignations, because EEOC violations and litigation may be at higher risk. The Department of Labor prefers that all employees who violate company policies or best practices are provided with immediate feedback in the form of a series of documented "warnings" prior to involuntary termination.

This ensures that employees are provided with professional development opportunities rather than discharged arbitrarily or on their first infraction. Therefore, a verbal warning must be documented, regardless of whether the warning was verbal. Meanwhile, written warnings must clearly communicate to the employee that their behavior is unacceptable and may be grounds for termination after 2-3 additional written warnings within a specified time period (i.e. 1-year). Policies must be designed and implemented in conformity with EEOC guidelines so as to avoid risks of litigation. Employers must also work to ensure that termination conforms with all written employment contracts and potentially inadvertent verbal contracts that are created by a supervisor such as "Your job will be secured if you do X". Finally, involuntary terminations must also ensure that the individual produces codified instructions for completing daily tasks and provides training for the incoming replacement. However, this may be more challenging to secure, because termination may be hostile or sudden.

HR Checklist:

#### Voluntary Resignations

107. 1. Planned and scheduled.

108. 2. Require the codification of the individual's institutional knowledge and processes.

109. 3. Require training of the incoming staff member when possible.

#### Involuntary Terminations

110. 1. Planned and scheduled.

111. 2. Require the codification of institutional knowledge and processes.

112. 3. Require training of incoming staff member when possible.

113. 4. Provide immediate documented "warnings" upon violation of company policies.

114. 5. Corrective action must conform with company policies.

115. 6. All elements of employer conduct must conform with EEOC guidelines.

116. 7. Termination must conform with employer's verbal or written contracts for employment.

### Risk Management

The principles of risk management for human capital managers must consist of (1) familiarity with market behavior, (2) strategies designed to respond to changes in market behavior, (3) legal compliance, (4) behavioral drives, and (5) the influence of government policies upon markets. Through developing familiarity with the principles of supply and demand within the context of human drives, one may ensure that a company's mission and vision are established upon sound economic principles and compliant practices. Through developing familiarity with these subject areas, one may develop unique risk management strategies so as to maximize company performance.

HR Checklist:

117. 1. Train staff to interpret market behavior.

118. 2. Train staff to develop strategies to respond to markets.

119. 3. Train staff in legal compliance best practices.

Human capital management requires compliance with a wide variety of federal and state regulations, which standardize the minimum legal requirements for recruiting, on-boarding, training, compensation and benefits, healthcare, leave, affirmative action programs, corporate ethics, securities regulations, and much more.

The next section is designed to provide a brief review of the government regulations with which human capital managers must ensure compliance in sequence regulation applicability to company size (Siwalk, 2017).

#   

# HR Compliance for Employers

## Compliance Overview

## Compliance Applicability Threshold: 1 Employee

## The Fair Labor Standards Act

The United States Fair Labor Standards Act (FLSA) originated in 1938 in order to regulate the duration of the work-week, minimum wages, overtime regulations, the prohibition of child labor, and other standards for companies operating within the US (U.S. Department of Labor Wage and Hour Division, 2011). The FLSA only applies to employers and employees and does not apply to independent contractors. FLSA applies to employers, because these organizations maintain a high level of control over their staff, and regulations have been developed to prevent abuses of their position.

Conversely, the act provides for flexibility for independent contractors, which enables employers to sustain highly fluid relationships with those who do not wish to work under the direct supervision and control of a company, but prefer to remain engaged with the market as free-agents. Therefore, this law is designed to uphold the rights of those with limited leverage during negotiations with employers while granting flexibility for independent contractors to engage in the free market. This allows the employer and contractor to be masters of their contracts so as to design their own unique relationships.

The FLSA defines an employee according to the general principle of whether the employer maintains high levels of control over the worker's daily activities (U.S. Department of Labor Wage and Hour Division, 2014). The criteria utilized to classify a worker as an employee are as follows:

120. 1. What is the extent to which a worker's behavior serves as an integral component of the employer's operations? The department of labor explains that individuals must be classified as employees if they render services that are "part of [the employer's] production process or [ . . . ] a service that the employer is in business to provide" (U.S. Department of Labor Wage and Hour Division, 2014).

121. 2. Does the worker's managerial skill impact their ability to generate a personal profit or loss? If no, they must be classified as an employee.

122. 3. The relationship between the investments in facilities and equipment by the worker and the employer are separate and distinct vs. interconnected. If they are separate and distinct, they are classified as a contractor. If they are closely connected, they are classified as employees.

123. Note: #2 and #3 are related in that an independent contractor would stand to gain a profit or lose money depending upon the degree to which they successfully engaged with an employer to render a specialized service - For example, electrical repair of the employer's facility. Here, the independent contractor may bring their own equipment and repair supplies to the company's facilities on a fixed bid, and if they run over budget on their costs of equipment, they may reduce their profit margin. Conversely, an employee would not run the risk of reducing their profit, because they do not invest their own capital into providing a service to the employer - There is not opportunity for profit or loss.

124. 4. The worker's skill and initiative: This test further clarifies the contrast between an employee and an independent contractor, because although both individuals are presumed to be skilled, the employee is presumed to require direction and supervision by the company. Meanwhile, the independent contractor is presumed to be possessed of a high level of expertise (i.e. electrical repair) that is not a component of the employer's business (i.e. the company does not employ electricians to repair it's facilities as an integral component of it's business (See #1), but rather, contracts with electricians as needed).

125. 5. The permanence of the worker's relationship to the employer: Individuals who are employed indefinitely are presumed to be employees, but short-term relationships (i.e. to conduct an electrical repair and depart) are presumed to be independent contractor relationships.

126. 6. The nature and degree of the employer's control of the individual: Control is typically defined as control over rate of pay and time on the job. Therefore, individuals whose pay rate is determined by a salary or hourly rate and must work for a specific period of time on a daily or weekly basis are "controlled" by the employer. Meanwhile, an independent contractor typically sets their own rates and schedule with a company, which they treat as a client.

### Exempt, Non-Exempt, and Over-Time

Exempt employees are salaried employees or those not entitled to overtime pay (US Department of Labor, 2008). These classifications include Executives, Professionals, Administrative staff, IT staff, and Outside sales, which are determined by payment method, job roles, and tasks, rather than title.

Executive Exemption

127. 1. Exempt employees must be paid a salary rather than an hourly rate for all weeks worked.

128. 2. Must earn a minimum of $455/week.

129. 3. Must be primarily responsible for managing the company, a department, or subdivision.

130. 4. Must regularly direct the work of a minimum of 2 full time employees.

131. 5. Must have the authority to hire, promote, and terminate employees or make suggestions to do so.

Administrative Exemption

132. 1. Exempt employees must be paid a salary rather than an hourly rate for all weeks worked.

133. 2. Must earn a minimum of $455/week.

134. 3. Must perform office work related to managing the business's general operations.

135. 4. Must exercise significant discretion on significant company matters.

Professional Exemption

136. 1. Exempt employees must be paid a salary rather than an hourly rate for all weeks worked.

137. 2. Must earn a minimum of $455/week.

138. 3. Primary duties must involve advanced and specialized knowledge of a particular subject matter that requires independent judgement.

139. 4. Field of knowledge must be related to a field of science or other specialized field.

140. 5. The knowledge must be acquired through prolonged training.

Creative Professional Exemption

141. 1. Exempt employees must be paid a salary rather than an hourly rate for all weeks worked.

142. 2. Must earn a minimum of $455/week.

143. 3. Must be primarily engaged in work that requires "invention, imagination, originality, or talent" in a field of known artistic specialization.

IT Employee Exemption

144. 1. Exempt employees must be paid a salary or fee rather than an hourly rate for all weeks worked.

145. 2. Must earn a minimum of $455/week or a minimum fee rate of $27.63/hr.

146. 3. Must be employed as a "Computer systems analyst, computer programmer, software engineer", or a similar field.

147. 4. Duties include:

  1. 1. "The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; 
  2. 2. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
  3. 3. The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
  4. 4. A combination of the aforementioned duties, the performance of which requires the same level of skills." (U.S. Department of Labor Wage and Hour Division, 2014).

Outside Sales Exemption

148. 1. Primary duties must be in making sales, orders, or contracts on behalf of the company.

149. 2. Must be regularly engaged in sales work away from the employer's primary place of business.

Highly Compensated Employees

150. 1. Employees earning more than $100,000 per year (minimum of $455/week) are exempt if they perform a minimum of one of the duties of the Executive, Administrative, or Professionals staff.

Blue Collar Workers, Police, Firefighters, and First Responders.

151. 1. Manual laborers, police, firefighters, and first responders are non-exempt and entitled to minimum wage and overtime pay.

## Equal Opportunity Employment Commission (EEOC)

Equal Opportunity Employment Laws and the Equal Opportunity Employment Commission (EEOC) are designed to protect individuals against discriminatory hiring practices (EEOC, 1986). The EEO Laws require that protected classes may not be hired, promoted, passed-over, pay-adjusted, harassed, or terminated due to any of the following characteristics:

152. 1. Race, ethnicity, national origin, or skin color.

153. 2. Sex, Gender Identity, Sexual orientation.

154. 3. Age of individuals over 40.

155. 4. Disabilities of any form.

156. 5. Military experience.

157. 6. Religion or creed.

158. 7. Pregnancy.

## Immigration Reform & Control Act (IRCA)

The Immigration Reform & Control Act of 1986 was designed to require that employers verify the legality of their staff's immigration status and outlawed the knowing recruitment of illegal immigrants (The U.S. Department of Labor, n.d.a). This promulgation of regulations required all US employers to retain a Form I-9 Employment Eligibility Verification in the event that a government agency wished to conduct an audit of the work-force.

## Employment Retirement Income Security Act (ERISA)

The Employment Retirement Income Security Act established the minimum requirements for pension and healthcare plans that were voluntarily established by employers (The U.S. Department of Labor, n.d.a). The ERISA is regulated by the Department of Labor, Department of the Treasury (IRS), and the Pension Benefit Guaranty Corporation. President John F. Kennedy created the Committee on Corporate Pension Plans in response to the Studebaker Corporation's failure to pay pensions as a result of illiquidity of it's asset pool. Multiple bills were proposed before Gerald Ford signed ERISA into law on September 2, 1974. ERISA ensured that employers met minimum requirements when voluntarily establishing pension plans, where (1) employees must vest over a minimum number of years, (2) minimum funding requirements must be met, (3) ERISA determined the manner in which payments must be made for Defined Benefit Plans vs. Defined Contribution Plans. Defined Benefit Plans were pension plans, which guaranteed employees a specific pay-out upon retirement, whereas a Defined Contribution Plan specified that pay-outs would occur in relation to the contributions made. ERISA was later amended to include the Consolidated Omnibus Budget Reconciliation Act (COBRA), Health Insurance Portability and Accountability Act (HIPPA), the Newborn's and Mothers' Health Protection Act, Mental Health Parity Act, and Women's Health and Cancer Rights Act.

#### ERISA Pension Vesting

The Pension Protection Act of 2006 amended ERISA to ensure that employers that contributed to a pension fund after 2006 would become 100% vested after three years of continuous employment or a more gradual 2 - 6th year vesting schedule (20% vested during year 1 and 100% after 6 years). Meanwhile, employee contributions were vested 100% from day 1. Defined benefit plans would vest at 100% after 5-years or the 3rd - 7th year (20% on the 3rd year and 100% after 7 years).

#### ERISA Pension Funding

The Pension Protection Act ensured that single-employer pension plans were required to remain fully funded, where the minimum contributions would consist of the benefit costs for that year. However, for plans that are not fully funded, the minimum contribution must consist of the cost of amortization over 7-years for the difference of (assets - liabilities). Plans that are in "at-risk" status and seriously underfunded must comply with more confining rules. However, the funding requirements are unique for multi-employer pensions, where multiple companies share a larger pool of assets. The majority of the rules are consistent for fully funded accounts, but if the fund's liabilities increase or decrease, the liabilities must be amortized. ERISA laws supersede any state laws regarding employee benefit plans with the exception of state insurance, banking, securities, criminal laws, and domestic orders that meet the minimum ERISA standards.

#### ERISA Statute Title 1: Employee Benefit Protections

The Employee Benefits Security Administration (EBSA) is responsible for implementing ERISA's Title I guidelines:

159. 1. Summary Plan Descriptions must be provided for pensions and health insurance plans.

160. 2. Form 5500 information must be completed and submitted to the Department of Labor and plan participants upon request.

161. 3. Employers must provide pension plan benefit calculations for accrued benefits upon request.

162. 4. Employers serve as a fiduciary to plan participants.

163. 5. Investment managers and service providers are also fiduciaries to plan participants.

164. 6. Pension plans may not invest more than 10% of assets in employer stock.

#### ERISA Statute Title II: IRS Amendments & Retirement Plans

For tax benefits to be applied, the following criteria must be met:

165. 1. Retirees must have the option of a joint annuity and survivorship annuity in the event of death.

166. 2. Plans may not benefit officers and high status employees without conferring those same benefits to all members of the organization.

167. 3. Individual Retirement Accounts (IRAs) must be formed.

168. 4. Tax deduction rules revised.

169. 5. An excise tax applies if the employer violates ERISA regulations or fails to make required pension contributions.

#### ERISA Statute Title III: Statute Administration, Enforcement, Jurisdiction, and Coordination

The Joint Board for the Enrollment of Actuaries was established to grant licenses to actuaries to service ERISA covered pension plans.

#### ERISA Title IV: Termination Insurance

The Pension Benefit Guaranty Corporation (PBGC) was created in order to provide a state-sponsored insurance program that will pay benefits in the event of a fund's liquidity failure.

#### Standard Termination of Single Employer Plans

Employers may terminate their plans if assets are equal to or exceed the plan's liabilities, but if not, the employer must fully fund the plan. Standard termination ensures that any benefits that have accrued become automatically vested 100%. Moreover, the employer must purchase annuity contracts, and if lump sums are permitted, employers must offer plan members the option of receiving the annuity or a lump sum. Once all benefits have been paid, any excess assets that remain within the fund must be either allocated to the employer or employee (Refer to Plan's terms).

#### Distressed Plan Termination

Plans may be terminated in accord with the "Distress Termination" protocols if the employer is (1) undergoing bankruptcy liquidation, (2) continuing to fund the plan would cause the company to become insolvent, or (3) continuing the plan would become burdensome due to a decline in staff levels. The termination may be implemented in accord with Standard Termination procedures or terminated by the PBGC.

#### Termination by PBGC

The PBGC is authorized to terminate a single employer plan if (1) the employer has failed to make minimum contributions, (2) the plan has become insolvent and unable to pay benefits, or (3) the PBGC's cost will be too high unless the plan is terminated. Plans that are terminated by the PBGC may pay less benefits than were guaranteed by the employer's pension plan.

#### Multi-Employer Plan Termination

Plans may be terminated through a variety of mechanisms, which include (1) amending the plan so as to preclude benefits for future work, (2) employers may withdraw or cease contributions, and (3) the plan may be converted into a defined contribution plan.

#### Bankruptcy

The Bankruptcy Code allows for employer retirement plans to be exempt from Bankruptcy proceedings, which protects them from being liquidated in order to pay for debts.

## Federal Insurance Contribution Act (FICA)

The Federal Insurance Contribution Act established the Federal Payroll/Employment tax, which is a regressive tax that both employees and employers must pay in order to fund Social Security and Medicare services (Legal Information Institute, n.d.a). The tax is levied against the first $118,500 of an employee's income at a rate of 6.2% for Social Security up to a maximum of $7,254 (2014). The Medicare portion is levied against 1.45% of an employee's income with no limits on earning potential. Meanwhile, the employer is responsible for paying for 6.2% for Social Security and 1.45% for Medicare. Therefore, the total tax burden is 12.4% for Social Security and 2.9% for Medicare. Severance packages are considered to be taxable as wages. The Social Security fund is primarily designed to serve as an annuity-based retirement benefit, but the fund also provides payments to the disabled, survivors of deceased benefit recipients, and disability payments. Similarly, Medicare serves to ensure that retired individuals have access to healthcare services in old age or during periods of disability, where Medicare assumes the costs of healthcare.

#### Self Employed

Self employed individuals must pay a similar tax, but this is not covered by FICA and is instead enforceable by the Self-Employment Contributions Act of 1954. These individuals are responsible for the entire portion of their tax (they do not share contributions with an employer). Self-employed individuals are liable for 15.3% taxation of their total income.

#### Exemptions for Full Time Students

Full time students are exempt from FICA tax if they are enrolled at least half time at a university and their employer is the university.

#### Exemptions for State Government Employees

Those employed by the state governments of Alaska, Colorado, California, Louisiana, Illinois, Maine, Nevada, Massachusetts, Ohio, and Texas are exempt from the Social Security payment, because these state governments provide employees with their own state-sponsored pension funds.

#### Exemptions for Non-Resident Aliens

Non resident aliens are also exempt from the FICA tax if they are (1) employed by a foreign government (2) students, professors, researchers, or summer camp workers in accord with Visa status (3) employees of international organizations, (4) residents of the Philippines and H-2A, H-2B, and H-2R visa holders are exempt from FICA in Guam, and (5) H-2A visa holders are exempt from FICA.

#### Other Exemptions

170. 1. Members of religious groups that are opposed to insurance may file Form 4029 to receive an exemption, but they must also forgo Social Security benefits and must notify the IRS within 60-days of joining the group or departing.

171. 2. Aliens on temporary work assignment of no more than 5-years in the US who are already covered under another country's Social Security program (To avoid double taxation) may receive exemption from FICA upon furnishing a certificate from their home country that they are covered by their country's social security system.

172. 3. Parents who employ their children under the age of 18 may be exempt from FICA, but not if they are employed by a corporation or partnership in which the parents are absent.

173. 4. Emergency workers who are temporarily hired to respond to catastrophic emergencies are exempt from FICA insofar as they are not regarded as permanent employees.

174. 5. Newspaper carriers under age 18 are not required to pay FICA.

175. 6. Real estate agents and commission-based sales people are exempt from FICA.

## Equal Pay Act (EPA)

The Equal Pay Act of 1963 served as an amendment to the FLSA, which prohibited the discrimination of wages based upon sex (U.S. Equal Employment Opportunity Commission, n.d.a). Employers are subject to strict liability in the event that they violate the EPA, which means that the employer need not intentionally discriminate based upon sex, but only if discrimination exists. The criterion that establish strict liability include (1) wages are paid differently to employees of the opposite sex, (2) these employees engage in substantially equivalent work, and (3) work is performed within similar working conditions. In 2009, the Lilly Ledbetter Fair Pay Act revised and extended the EPA so that each pay check that is issued represents a separate violation of the law (Chao, 2005). Since the passage of this amendment, women's wages have risen from 62% of men's earnings in 1979 to 80% as of 2004.

## Uniformed Services Employment & Reemployment Rights Act (USERRA)

The Uniformed Services Employment & Reemployment Rights Act is administered by the Department of Labor (USERA, n.d.). The Act is designed to protect the rights of individuals who are drafted or activated for military service or service for the President. The supreme court has held that the Act must be liberally interpreted in order to ensure that any position or opportunity for advancement would be maintained while the individual was in service (Legal Information Institute, n.d.b). USERRA also required that employers take reasonable measures to ensure that reasonable accommodations are made for disabilities incurred during war-time, re-training is provided if needed, employer healthcare is available for up to 24-months at up to 102% of premium (if deployed for more than 30 days); Healthcare benefits and cost remains stable if deployment is under 30-days. Military servicemen and women are eligible to apply for reemployment for the following periods:

176. 1. If service is less than 31 days, they must begin on the next regularly scheduled work-day, accounting for safe travel and a night's sleep.

177. 2. If service is between 30 - 181 days, the application may be submitted within 14-days of release from deployment.

178. 3. Service for more than 180 days allows for re-application within 90-days. Note: Military servicemen and woman are required to provide as much advance notice to their employer as possible.

## National Labor Relations Act (NLRA)

The National Labor Relations act of 1935 was established in order to protect the rights of workers to establish trade unions and enhance their collective bargaining power. The law also established the National Labor Relations Board (NLRB), which promulgates the Act (National Labor Relations Board, n.d.). The NLRB is responsible for holding elections and requires certain employers to negotiate with unions, sharing the burden of costs for negotiations, and prosecution for violations.

#### Rules that govern collective bargaining:

179. 1. Only one bargaining representative is permitted for a group of employees.

180. 2. The procedures of the NLRB bargaining process must be utilized.

181. 3. Employers are required to bargain with unions.

182. 4. Employees are permitted to reveal their wages to each-other.

#### The NLRA also defined unfair labor practices as follows:

183. 1. Interference with the formation of unions to engage in collective bargaining.

184. 2. To interfere with or control the administration of unions or to contribute financial support to the union.

185. 3. To discriminate against hiring or tenuring individuals for their engagement with a union.

186. 4. Retaliation or discrimination against those who file charges against the employer or testify when an employer is alleged to have violated NLRA.

187. 5. Refusal to negotiate with the union's representative.

#### Exclusions

The NLRA does not apply to individuals who are employed by the government, railroad or airline industries, agricultural workers, or domestic workers. Religious exemptions also exist for those who hold a religious conviction against joining a union.

#### Amendments

The Labor Management Relations Act of 1947 (Taft-Hartley Act) restricted the power of labor unions for the purposes of protecting and enhancing commerce. The Act ensured that unions were not permitted to engage in secondary boycotts, wherein unions would boycott not just their own employer, but the goods and services that sustained their employer. Through prohibiting this behavior, the Act sought to protect spillover effects to other businesses not engaged in negotiations. The Act also prohibited unions from supporting federal political campaigns. Striking practices were also regulated, wherein unions were requested to notify employers, relevant state and federal mediation agencies, and members of the union prior to engaging in a strike. The Act also ensured that the President was permitted to override a strike in the event that it conflicted with the nation's needs during a state of emergency.

The Act also allowed employers to terminate supervisors who opposed the employer's position and supported a union, and employers were granted greater flexibility to express their opposition to the formation of unions within the work place. The Supreme Court ruled that employers were permitted to express their opposition as a form of protected free speech, but that employers could not threaten employees with penalties for forming a union. Employers were also provided with a means by which to submit a petition to dissolve the union in the event that the union does not comply with the NLRA's regulations. Moreover, the NLR was mandated to respond to violations if they occurred rather than use it's previously liberal discretion to voluntarily act.

## Uniform Guidelines for Employment Selection Procedures of 1978 (EEOC)

The Uniform Guidelines for Employment Selection Procedures ensures that employers utilize a standard system for implementing employment testing and hiring decisions (Biddle Consulting Group, 2015) The Guidelines address all assessment methodologies, which includes writing tests, probationary periods, interviews, review of qualifications, work portfolios, and physical requirements. Practices must conform with non-discrimination statutes, and they must comport with (1) content validity, (2) criterion validity, and (3) construct validity. Content validity refers to the degree to which a testing or screening process relates to the actual content of the job. Criterion validity refers to the degree to which a score on a test reflects actual job performance, and the validity of constructs refers to the psychological traits that are tested, which must actually be connected to job performance and testable by the examination.

Through reviewing these three forms of validity one must ensure that a position description exists in order to compare the test results with the content of the position and verify the efficacy of the assessment. In the event that multiple procedures are possessed of equivalent validity but differing levels of adverse impact upon the applicant, the procedure with the least adverse impact must be selected. Assessments with minimum score standards must correlated with actual minimum duties required for a position. Moreover, employers that administer assessments must ensure that protected classes are not adversely impacted by a particular examination when compared with non-protected classes.

Content Validity Requirements:

The following must be present in order to ensure that an assessment is possessed of content validity (Society for Human Resource Management, 2017):

188. 1. List of essential tasks of job.

189. 2. Relative importance of tasks.

190. 3. Critical knowledge, skills, and abilities.

191. 4. Clear link between knowledge, skills, abilities and duties.

Content validity may also be reviewed through determining:

192. 1. That behavior during selection processes may impact successful performance of the job.

193. 2. Knowledge, skills, and abilities must be operationally defined so as to reflect actual job duties.

194. 3. Selection procedures that test behaviors must mirror work behaviors, and

195. 4. Complexity of the selection process should mirror job duties.

The employer must retain the following documentation to verify that content validity exists.

196. 1. Position description and analysis.

197. 2. Review of selection procedures.

198. 3. Relationship between selection procedures and job.

199. 4. Purpose of the selection procedure.

## Employee Polygraph Protection Act (EPPA)

The Employee Polygraph Protection Act of 1988 prohibited the majority of employers from utilizing a polygraph test for during the screening and hiring process (United States Department of Labor, n.d.b). The only companies that were permitted to administer such tests included applicants for security positions, and the Act did not apply to government employers.

## Sarbanes-Oxley Act (SOX) Via SEC

The Sarbanes-Oxley Act of 2002 was also known as the Public Company Accounting Reform and Investor Protection Act, which was established in response to the Enron, WorldCom, and other corporate scandals of the early 2000s (U.S. Securities and Exchange Commission, 2013).

#### Title I: Public Company Accounting Oversight Board.

This established the Public Company Accounting Oversight Board in order to ensure that Auditing services firms were regulated so as to ensure the veracity of their data.

#### Title II: Independence of Auditors.

This established standards designed to ensure that Auditors were independent, objective, and free from conflicts of interest such as providing other fee-based consulting services to companies that were the subject of an audit.

#### Title III: Corporate Responsibility.

This established standards for corporate responsibility designed to ensure that executives were personally responsible for the accuracy of financial reporting to investors.

#### Title IV: Financial Disclosures.

This was designed to establish additional reporting requirements for all transactions, whether listed on the balance sheet or otherwise - Such as issuance of stock to corporate executives.

#### Title V: Conflicts of Interest.

This established systems designed to produce a code of conduct for securities analysts and to ensure the disclosure of conflicts of interests (i.e. When reporting on a securities product, one must disclose one's holdings in the company or lack thereof).

#### Title VI: Reporting.

This mandated that the Securities and Exchange Commission and the Comptroller General perform a study on a variety of corporate scandals and generate a report on their findings.

#### Title VII: Corporate and Criminal Fraud.

This established criminal penalties for manipulating financial data or interfering with investigations.

#### Title VIII: White Collar Crime Penalties.

This increased the severity of penalties for violating laws related to financial data manipulation.

#### Title IX: Executives and Tax Returns.

This mandated that all CEOs personally sign the company's tax returns prior to submission to the government.

#### Title X: Corporate Fraud and Accountability.

This established that corporate fraud and tampering with corporate records could be prosecuted as criminal offenses.

## Consumer Credit Protection Act (CCPA)

The Consumer Credit Protection Act of 1968 protected employees from termination as a result of court-ordered wage garnishment or due to indebtedness to any entity (Association of Corporate Council (ACC), 2011).

## Fair and Accurate Credit Transactions Act (FACT)

The Fair and Accurate Credit Transactions Act of 2003 was established in order to reduce the incidence of identity theft through regulating the manner in which financial institutions stored personal data (Association of Corporate Council (ACC), 2011). Creditors were subject to these regulations, and they were classified according to the Equal Credit Opportunity Act (Section 702) as those who obtain or make use of consumer reports, provide information to consumer reporting agencies, or provide advance funds to on on the behalf of an individual who is making use of credit.

#### Red Flag Rules

The Red Flag Rules were implemented in 2007 in order to ensure that Identity Theft Prevention Programs were properly designed to prevent the loss or misuse of consumer information. The rules established the definition of a "Financial Institution" as: Federal, sate, and national banks, savings associations, loan associations, mutual savings banks, credit unions, or any person who possesses access to a person's checking, savings, or other financial accounts. The Red Flag Clarification Act of 2010 further amended the rules to provide that creditors are not to be defined as law firms or healthcare providers who make advances of services in expectation of future payment. However, if these institutions hold an account on behalf of the consumer, they may be classified as creditors.

#### Identity Theft Programs

The Act also required that Identity Theft Programs be designed with procedures that identify red flags in employee behavior while handing consumer information. Companies are required to respond to mitigate risk of theft and periodically update the policies to remain prepared for new threats. Threats are inclusive of alerts from consumer protection agencies, service providers, suspicious documents or behavior, and alerts from law enforcement or other third parties. These programs also require that institutions contact the customer in the event of a threat, change log-in information, re-open an account with a new account number, refuse to open new accounts during moments of potential risk, refuse to collect funds from the account that may have been compromised, contact law enforcement, or conclude that no response is required. These programs must be approved, overseen, and monitored by the company's Board of Directors, and all senior management, management, and staff must be trained on identity theft protocols.

## Health Insurance Portability and Accountability Act (HIPAA)

The Health Insurance Portability and Accountability Act (HIPAA) is comprised of five Titles, which are designed to protect employee access to healthcare, prevent fraud and abuses, revise regulations for medical savings accounts, group insurance, and other tax revisions ("Public Law 104-191," 1996).

#### Title I

Title I granted group health insurance plans the right to refuse benefits for preexisting conditions for 12 months post enrollment and up to 18 months for those who enrolled late. Meanwhile, individuals were provided with the opportunity to seek an exemption from the number of months of the waiting period that correlated with the time in which they were previously insured with "Creditable coverage". Creditable coverage included nearly any employer or individual health plan including medicaid, medicare, and dental, vision, and limited coverage plans. However, accidents or illnesses that occurred during the time in which individuals were covered under limited coverage plans, would only be covered by their new insurer if those specific accidents and illnesses were a component of the specified benefit. Meanwhile, if individuals were without coverage for 63-days, this would constitute a lapse in coverage, and the waiting period would begin from that point. Insurers were also permitted to adjust premiums and co-payments based upon tobacco use and body mass index. Insurers were prohibited from terminating coverage as a result of medical illnesses, so long as creditable coverage was in force during the onset of the illness. Title I established that insurers must treat all members of the health plan equally, and no special rules or plans could be created for any other members of the plan. Title I also established that insurers must continue to provide coverage during termination of employment, divorce, or death.

#### Title II

This was designed to prevent fraud, enhance the efficiency of administrative procedures, and update medical liabilities. Title II required the Department of Health and Human Services (HHS) to enhance administrative efficiency through standardizing the publication of health-care information. This title also defined the "covered entities" that must abide by HIPAA, which included employer health plans, health plans, billing services, community information services, providers, and contractors who worked with these entities. Title II also established the administrative simplification rules: (1) The Privacy Rule, (2) Transactions and Code Sets Rule, (3) Security Rule, (4) Unique Identifiers Rule, and (5) Enforcement Rule.

All covered entities were also required to appoint a Privacy Officer whose responsibility included training organization staff in HIPAA privacy regulations and enforcing compliance. The Privacy Officer would also be responsible for receiving any and all complaints related to the breach of privacy data and taking reasonable steps to re-train staff and prevent future breaches. Individuals were also provided with the right to submit complaints to the Department of Health and Human Services Office for Civil Rights. Covered entities were originally in an advantageous position, wherein a breach of confidential data required the complainant to provide proof of damage, but the 2013 Final Omnibus Rule Update shifted the burden of proof upon the covered entity that harm was not done. The update also revised the protection of PHI from indefinitely to after 50 years of death.

The Privacy Rule was designed to ensure the protection of Protected Health Information (PHI), which was defined as any and all information related to health conditions, treatments, or payments (i.e. nearly anything related to medical history). However, PHI was required to report child abuse, respond to court-orders, warrants, subpoenas, locate a missing person, material witness, or identify a suspect, which could involve the disclosure of confidential information to law enforcement and child protection agencies. Moreover, the Privacy Rule established that all PHI must be shared with the individual within 30-days of request. The Security Rule was also created for small plans in order to supplement the Privacy Rule, wherein covered entities were required to establish their own written internal policies for how they planned to comply with HIPAA. These covered entities were required to cite the policy's oversight by management, classify which employees must handle protected information to fulfill their duties, and provide evidence of training and specify how information access would be authorized, modified, and terminated. Organizations that outsourced their operations to a third party were also required to verify that the third party was compliant with HIPAA (Typically achieved through a contract). The rule also required that organizations must implement data backup and security protocols in the event of an emergency, internal audits regularly verify the presence of security protocols, proper access to, monitoring, and disposal of physical information storage systems (i.e. physical locks, software security keys, log-in/access records, data-integrity and security checks, and documentation of the proper protocols and procedures).

#### Title III

Title III provided tax deductions for health insurance, standardized the maximum amount that could be saved in a pre-tax medical savings account (MSA), which served to offset a health insurance deductible, and set standards for long-term care services. Title IV further clarified the regulations regarding how to enforce Title I provisions.

#### Title V

Title V prohibited tax deductions of life insurance loan interest payments and company endowments, among others, and established a registry of expatriates who changed citizenship in order to avoid taxes.

## Occupational Safety and Health Act (OSHA)

The Occupational Safety and Health Act of 1970 (OSHA) was designed to ensure that employers provide reasonably safe working conditions and followed specific rules regarding hazardous chemicals, mechanical risks, sanitation, and extremes of heat, cold, and sound (United States Department of Labor, n.d.d).

The General Duty Clause (Section 5) requires that employers enforce the following:

200. 1. Ensure that company procedures are reasonably safe.

201. 2. Abide by the same or similar standards as similar organizations.

202. 3. Employees must utilize protective equipment when necessary.

Moreover, OSHA may take action against an employer if

203. 1. Hazards exist.

204. 2. The employer knew or should have known about the hazard.

205. 3. The hazard could cause severe injury or death.

206. 4. The hazard may be corrected without impeding the functionality of the business.

OSHA recognized that many hazards are challenging to foresee or regulate, so they primarily focused upon toxic chemicals, excavation trenching and digging, waste products, mechanical dangers, small spaces, fires, and explosive risks.

#### Reporting

Section 8 of the Act required employers to submit a report to OSHA within 8 hours if an employee dies as a result of a work-place related event, three or more employees are hospitalized, or if a heart-attack occurs on the job. OSHA Form 300 must be completed in order to log work-place related injuries, annual summaries must be made available every 90-days, and all records must be retained for 5-years. Employers are also required to retain an inventory of all chemical products that are present on the job site other than common household cleaning products. Material safety data sheets (MSDSs) must be available for all employees in order to inform them of chemical risks and how to avoid injury or death.

11+ Employees

Record-keeping procedures apply for Occupational Safety and Health Act as well as the acts that follow.

15+ Employees

## Americans with Disabilities Act (ADA)

The Americans with Disabilities Act of 1990 created disabilities as a protected class with similar protections as those created through the Civil Rights Act but with the additional requirement that employers provide reasonable accommodations for disabled persons and install handicap accessible services ("Americans with Disabilities act of 1990, as amended," n.d.). The Act also prevents employers from asking questions regarding potential disabilities or conducting medical exams.

#### Title I

Employers are required to provide "reasonable accommodations" to ensure that employees are able to fulfill their duties. This may be achieved through adjusting schedules, allowing or providing assistive equipment, and adjusting the manner in which tasks must be completed. However, employers are not required to assume large expenses and complex adjustments of the job in order to accommodate individuals with disabilities.

#### Title II

Public entities must comply with Title II, which specifies that access routes such as ramps and elevators be made available where entry and exit corridors exist. Title II specified the minimum requirements for designing a building or structure that is accessible to the public, which emphasizes disability access.

#### Title III

Title III extended disability protections to all publicly available goods and services such as hotels, restaurants, and shopping centers, etc. Therefore, all new buildings and modifications are required to comply with the Americans With Disabilities Act Accessibility Guidelines (ADAAG) of the Code of Federal Regulations, 28 CFR, Part 36, Appendix A. Title III of the ADA also penalized "failure to remove" structures that blocked access for disabled persons - Regardless of whether the buildings existed prior to enactment by the ADA or had not undergone modifications since it's passage, so long as the removal of such structures was not too challenging or expensive. The ADA also applied to Historic Buildings, so long as he historical character of the building was not destroyed.

#### Service Animals

The ADA provided protections for individuals with service animals but prohibited businesses from asking for verification, ID, or demonstrations of the animal's service status. Rather, businesses were only permitted to ask whether the individual's pet was a service animal. The ADA overrides food health and safety regulations, which prohibit the presence of animals on the premises; the animals may not be removed unless they pose an immanent threat or clear disruption to the business's environment. The individual may not be charged for damage that the animals cause to their property unless it is customary that individuals are charged for damage to property.

#### Title IV

This required all telecommunications companies to provide access to their services through modified technology for the hearing impaired.

#### Title V

This provided for protections from retaliation, coercion, or interference with exercising one's ADA rights.

#### Expansion of Disability Definitions

The Americans with Disabilities Act was amended in 2008 to change the definition of a disability from one that "severely or significantly" impairs to "substantially limits" one or more of life's primary activities (either physical or psychological). The Equal Employment Opportunity Commission was assigned the task of implementing the law. These activities included "caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, and working" among others.

## Genetic Information Nondiscrimination Act (GINA)

The Genetic Information Nondiscrimination Act (GINA) of 2008 was established in order to prevent employers and health insurance companies from discriminatory hiring practices or denial of coverage as a result of genetic predispositions to develop diseases (U.S. Equal Employment Opportunity Commission (EEOC), 2008).

The EEOC required that:

207. 1. Employer wellness programs are voluntary.

208. 2. Health insurance coverage may not be denied due to refusal to participate in a wellness plan.

209. 3. Employment may not be terminated or impeded due to refusal to participate in a wellness program.

Compliance Applicability Threshold: 20+ Employees

## Age Discrimination in Employment Act (ADEA)

The Age Discrimination in Employment Act (ADEA) of 1967 was established in order to prevent employers from discriminating against individuals age 40 and above during hiring, promotion, raises, termination, and layoffs (U.S. Equal Employment Opportunity Commission (EEOC), n.d.). Therefore, employers were prohibited from making statements regarding the preferred age of prospective employees, changing benefits for older staff, and mandatory retirement. However, mandatory retirement was permitted for executives over the age of 65. The burden of proof is on the employer to demonstrate that adverse actions taken are a result of other factors rather than age (Supreme Court Meacham vs. Knolls Atomic Power Lab) (Legal Information Institute, n.d.c). The supreme court ruled that federal workers who experience retaliation for enforcing anti age discrimination protections may sue for damages (Gomez-Perez v. Potter, 2008). The supreme court also held that state employees are entitled to sue state officials for declaratory and injunctive relief but not for monetary damages in federal court (Kimel v. Florida Bd. of Regents, 2000).

## Consolidated Omnibus Budget Reconciliation Act (COBRA)

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 was designed in order to provide the option for employees to maintain their employer health insurance coverage in the event of termination, to amend ERISA, and changes to the tax code, pensions, emergency room treatment, and others (Govtrack, n.d.). One of the substantive provisions of the Act imposed an excise tax on employers with 20+ full time equivalent employees if their health insurance plan did not satisfy a set of rules.

For an employer to be exempt from the tax, they were required to ensure that their health insurance plan only resulted in a loss of benefits as a result of the following:

210. 1. Death of the insured.

211. 2. Termination of employment due to resignation, discharge for gross misconduct, loss of hours, layoffs, strike, medical leave, or economic recession.

212. 3. Divorce terminates the spouse's eligibility for benefits.

213. 4. Dependent children age out of the plan.

#### Continuity of Health Insurance Coverage

COBRA ensures that individuals may remain covered for up to 18-months upon ineligibility, but employees typically pay the full amount for their premium plus up to 2% of the administrative costs. For individuals who are declared disabled, they need only pay 50% of the cost of premium for the final 11 months of the extended period. Instances of disability as determined by the Social Security Administration may allow coverage to continue for up to 29 months. Meanwhile, a divorced or widowed spouse may remain covered for up to 36 months. However, COBRA does not apply when plans are terminated for the entire company or the business is terminated. Some states have created mini-COBRA laws to fill the gaps of Federal COBRA laws.

Compliance Applicability Threshold: 50+ Employees

## Affordable Care Act (ACA)

The Patient Protection and Affordable Care Act of 2010 was established in order to expand health insurance coverage in the United States and reduce the cost of healthcare (Healthcare.gov, n.d.e). The Act established that:

214. 1. All individuals in the US were required to have health insurance or be subject to a tax.

215. 2. A new guaranteed issue individual market for health insurance would be subsidized by the federal government.

216. 3. Medicaid and medicare would be expanded.

217. 4. Employers of 50+ full time staff were required to offer group coverage or pay a fee to the government.

#### Maximizing Coverage

Employers were required to establish health insurance programs that provided creditable coverage to 95% of their full time employees and children through age 26. Full time was defined as 30 hours per week or greater. Employers are required to pay a $2,260 per employee shared responsibility payment (minus first 30 employees) if 1 employee participates in a health insurance exchange and receives a subsidy from the federal government. To avoid the penalty, an employer health insurance plan must:

218. 1. Provide "minimum value" of 60%+ coverage of the cost of services (equivalent with a bronze plan).

219. 2. Ensure that the coverage is affordable so as to ensure that the cost of premiums does not exceed 9.69% in 2017 of an employee's household income.

Furthermore, employers must:

220. 1. Submit an annual report to the federal government in order to verify compliance with the mandate (IRS Code 6056). The report must include the monthly cost of coverage.

221. 2. May not impose a health insurance enrollment waiting period of more than 90-days, so coverage must begin on the 91st day after the open enrollment date.

## Family and Medical Leave Act (FMLA)

The Family and Medical Leave Act (FMLA) of 1993 provides unpaid job-protected leave for a variety of family and medical events and is administered by the DOL (United States Department of Labor - FMLA, n.d.e).

The Act required employers to provide eligible employees with up to 12 weeks of unpaid job protected leave during a 12-month period in the event of a medical emergency for the employee or their dependents, the birth of a child, or adoption or assignment of a foster child. Eligibility is determined by whether an employee has worked with the employer for a minimum of 12 months and worked 1,250 hours (minimum) during the most recent 12-month period. Covered employers are those with 50 or more employees who work within 75 miles of the company's center of operations. The Act also applies to public sector employees with the following modifications:

222. 1. The size of a state agency or educational facility is not relevant.

223. 2. Elected officials and their aides are not eligible for FMLA protected leave.

#### Top 10% Of Employees

The top 10% of salaried employees are eligible for leave, but the employer is not required to restore them to their original or an equivalent position if the employer demonstrates that doing so would significantly impair operations. However, the employer must notify these individuals of their policy. Employers are also permitted to require individuals to utilize their paid or unpaid leave time for a portion of the FMLA-enabled leave.

#### Military Family Leave

The Military Family Leave program also provides for unpaid job protected leave in the event of overseas military deployment for 12+ months, where 12-weeks of leave are provided. Military caregivers (spouse, child, parent, next of kin) may take up to 26 weeks of leave if they are providing medical care for an eligible military serviceperson.

#### Continuation of Healthcare Coverage

The FMLA also provides continuous access to employer healthcare benefits at the same rate that would be available if they were on duty, the right to return to the same position or an equivalent position in role, duties, and pay, the right to non-interference of their rights by the employer, protection from retaliation, and intermittent leave for the treatment of chronic conditions.

#### Leave to Care for Parents and Guardians

FMLA also provides coverage to individuals whose elderly grandparents require medical care so long as they were serving as the primary parents/guardians prior to when the individual turned 18. FMLA also defines "parent" as applicable to same-sex parents who serve as primary caregivers for their children.

## Affirmative Action Program (AAP)

Affirmative Action Programs are required to advance the recruitment and retention of minorities in accord with Section 503 of the Rehabilitation Act of 1973, the Vietnam Era Veteran's Readjustment Assistance Act of 1974 (VEVRAA), Jobs for Veterans Act and Executive Order 11246 (United States Department of Labor - Jobs for Veterans Act, 2016), (United States Department of Labor Executive Order 1126, n.d.g).

Section 503 of the Rehabilitation Act requires that federal contractors with contracts over $10,000 implement affirmative action programs. Meanwhile, the Vietnam Era Veterans Readjustment Assistance Act requires contractors to focus upon recruiting recently released veterans and veterans with disabilities (United States Department of Labor OFCCP, n.d.f). The Act also requires that federal contractors with contracts established prior to 2003, with 50+ employees, and contracts totaling $25,000+ establish affirmative action programs for these groups. Federal contractors with 50+ employees, $50,000+ in contracts, as well as those with contracts of $100,000 that were initiated on or after December 1, 2003 must develop written affirmative action programs.

Executive Order 11246 also establishes that all federal contractors and subcontractors with 50+ employees or $50,000+ in federal contracts, must develop a written affirmative action program within 120-days of contract initiation to be revised annually (United States Department of Labor Executive Order 1126, n.d.g). Furthermore, any financial institution that transacts or issues US savings bonds or notes must develop their own affirmative action programs. Court orders that mandate the creation of affirmative action programs in response to Title VII discrimination claims may not:

224. 1. Produce undue burden upon the employer (i.e. layoffs).

225. 2. Require hiring or promoting unqualified persons.

226. 3. Must be temporary in nature until anti-discrimination objectives are achieved.

Compliance Applicability Threshold: 100+ Employees

## Worker Adjustment Retraining Notification Act (WARN)

The Worker Adjustment Retraining Notification Act of 1988 was designed to protect employees from the effects of layoffs at organizations with 100+ employees (United States Department of Labor, 2015). The Act required employers to provide 60 calendar days of notice that layoffs or plant closings would occur. Employers were required to notify directors, managers, salaried, and hourly workers, their union representatives, elected officials, and the state dislocated worker agencies. Eligible employees included those who have worked more than 6-months during a 12-month period on average more than 20-hours per week. Non-eligible employees included workers on strike, temporary workers, business partners, consultants, contractors, and government employees. Violating the WARN act may result court ordered back-pay to employees who were not properly notified for the duration of the violation for up to 60-days or for the period in which notice was not provided, if less than 60-days.

#### Exemptions

227. 1. Providing advance public notice would preclude a company from acquiring new capital and deter investment, which would enable the company to avert layoffs.

228. 2. Dramatic changes in business precluded the company from anticipating the need for a lay-off within the 60-day time period.

229. 3. Natural disasters suddenly necessitated layoffs without sufficient notice.

#### Non-Eligible Projects

Non-eligible projects include (1) temporary projects and facilities, (2) projects where fewer than 50 workers lose their jobs, (3) if 50 - 499 workers lose their jobs but that number represents less than 33% of total workforce, (4) the lay-off is temporary for 6 months or less, (5) work hours are not reduced by 50% within a 6-month period.

## EEO-1 Survey Filing (Title VII, Civil Rights Act of 1964)

The EEO-1 Survey Filing is required by Title VII of the Civil Rights Act of 1964 in order to document race, ethnicity, gender, and job category (United States Department of Labor - WARN, 2015). The objective of this filing is to establish a confidential record of the degree to which an employer hires minorities and women so as to enforce non-discrimination laws. The filing must be submitted annually no later than September 30th of each year.

Applicable to:

230. 1. Employers with 100+ employees.

231. 2. Employers with less than 100 employees if the company is a subsidiary of an employer with 100+ employees.

232. 3. A Federal contractor or first-tier subcontractor with 50 or more employees and a contract or sub-contract of $50,000 or more.

Employers with Federal Contracts of Any Size

## Davis-Bacon Act

The Davis Bacon Act of 1931 has been updated and revised several times since it's passage, and the original objective was to ensure that federal contractors were compensated properly when engaged with construction projects with the federal government (United States Department of Labor - Davis Bacon Act, n.d.h).

Contractors and subcontractors with contracts exceeding $2,000 for the construction or repair of public buildings and properties must ensure that wages are paid at the prevailing wage rate for similar local projects. For primary contracts in excess of $100,000, contractors and subcontractors must also pay 1.5 times pay for all hours over 40-hrs in a work week.

## Drug Free Workplace Act

The Drug Free Workplace Act of 1988 requires that all federal contractors publish a policy statement informing employees that it is illegal to manufacture, distribute, possess, or use a control substance and that corrective action will be taken in response to violations (United States Department of Labor - Drug Free Workplace Act, n.d.i). Employers are also required to establish an anti-drug awareness program in order to describe the risks of using drugs at work, company policies, provide resources to access drug rehabilitation programs, and review the penalties for drug use at work. Employees must also be informed that they are required to inform the employer if they are convicted of a work-place related drug violation within 5-days. Employers are required to notify the contracting government agency within 10 days of receiving notice of the violation, and the employer is required to either impose a penalty or require the completion of a drug rehabilitation program. The employer must also make an ongoing good-faith effort to maintain a drug-free workplace.

## Contract Work Hours and Safety Standards Act (CWHSSA)

The Contract Work Hours and Safety Standards Act, much like the Davis Bacon Act, ensures that federal contractors pay employers 1.5 wage rate for all hours in excess of 40 in a work week (U.S. Department of Labor - ESA, n.d.).

Exemptions include transportation, intelligence transmission, the purchase of materials and supplies available on the open market, work that comports with the Walsh-Healey Public Contracts Act, and contracts directly exempted by the Secretary of Labor so as to avoid undue hardship to government operations. Weekly payroll reporting is required to the contracting federal agency accompanied by a Statement of Compliance (Form WH-347 Payroll for Contractors Optional Use) or identical wording that certifies compliance. Statements must be certified by an authorized representative that monitors payment of wages.

## McNamara-O'Hara Service Contract Act (SCA)

The McNamara-O'Hara Service Contract Act of 1965 applies to general and subcontractors providing service contracts in excess of $2,500 (U.S. Department of Labor - McNamara-O'Hara, n.d.j). This Act ensures that the prevailing wage is used in order to determine compensation for employees who provide services through the contract.

## Executive Order 11246

Executive Order 11246 was established in 1965 in order to "prohibit federal contractors and federally assisted construction contractors and subcontractors, who do over $10,000 in government business in one year from discriminating in employment decisions on the basis of race, color, religion, sex, or national origin" and to "take affirmative action" to ensure that diversity is upheld (U.S. Department of Labor, n.d.k).

This order was unique and distinct from the Civil Rights Act of 1964, because it established requirements that federal contractors engage in affirmative action programs, whereas the Civil Rights Act simply required that organizations document infractions.

The Act also required contractors with 51+ employees and $50,000+ contracts to implement affirmative action plans if an analysis suggested that their staff were underrepresented by minorities. The Order also requires that employers are prohibited from retaliating against employees for inquiring about or discussing the pay rate of other employees. The Department of Labor was assigned the task of monitoring and enforcing this.

## Vietnam Era Veteran's Readjustment Assistance Act of 1974

The Vietnam Era Veteran's Readjustment Assistance Act of 1974 required federal contractors with contracts in excess of $25,000 to provide equal opportunity employment and affirmative action programs for Vietnam Veterans (U.S. Department of Labor, - OFCCP, n.d.l). Veterans may file complaints with the Office of Federal Contract Compliance Programs or Veteran's Employment Offices at their local state employment offices if they believe they have been discriminated against.

## Vocational Rehabilitation Act

The Vocational Rehabilitation Act of 1973 required that federal contractors with contracts in excess of $2,500 implement affirmative action policies to advance the employment of disabled individuals (National Association of the Deaf, 2017).

## Walsh-Healy Act

The Walsh-Healey Public Contracts Act of 1936 established regulations for federal contractors with contracts in excess of $10,000 for the manufacture or sale of goods (U.S. Department of Labor, n.d.m). The Act required contractors to compensate workers at the prevailing wage and issue overtime pay for all hours in excess of 40 (1.5 times rate of standard pay). The Act also prohibited the employment of individuals under the age of 16 and imprisoned convicts (exemptions may apply for prison-work programs).

## Copeland Act

The Copeland Act of 1934 is also known as the "anti kick-back act", which prohibited federal building contractors from recouping contracted wages from their employees (U.S. Department of Labor, n.d.n). Senator Royal Copeland's subcommittee found that federal contractors sometimes clawed-back up to 25% of wages paid to their staff as a "kick back" to the employing contractor. This Act was designed to mitigate those behaviors and incorporated violations into the Federal Criminal Statues.

Through reviewing the primary government regulations that human capital managers must monitor and enforce within their organizations, one may proceed to learning about behavioral economics. The section that follows will provide organizational psychology strategies for designing and implementing policies so as to ensure the highest level of compliance.

#   

# Citations

Miller, A. (2016). Economics 101: From consumer behavior to competitive markets-Everything you need to know about economics (Adams 101). New York, NY: Adams Media. Retrieved September 18, 2017.

Wilber, K. (2001). Sex, ecology, spirituality: the spirit of evolution (2nd ed.). Boston: Shambhala.

Maslow, A. H., & Frager, R. (1987). Motivation and personality (3rd ed.). New Delhi: Pearson Education.

Robbins, A. (1998). Unlimited power. London, UK: Simon & Schuster.

Wilber, K. (2000). Integral psychology: consciousness, spirit, psychology, therapy (1st ed.). Boston: Shambhala.

Shafritz, J., & Ott, J. S. (2000). Classical organization theory. In Classics of Organization (5th ed.). Orlando, FL: Harcourt.

Hertz, D. & Livingston, R. (1950). Contemporary Organizational theory: A review of current concepts and methods. Human Relations, 3(4), 373-394.

Taylor, F. W. (1972). Scientific management. Westport, CT: Greenwood

Weber, M. (2013). Economy and society: an outline of interpretive sociology (Vol. 2). Berkeley: Univ. of California Press.

The Wisest. (2011). Neo-classical school of management thought. Idea Today's. Retrieved from http://www.ideatodays.com/business/business-management/neo-classical-school-of-management-thought.html

Hemant, S. (2011). The production of modernization: Daniel Lerner, mass media, and the passing of traditional society. Philadelphia: Temple UP.

Bertalanffy, L. V. (2015). General system theory: foundations, development, applications. New York: George Braziller, Inc.

McGregor, D. M. (1957). The human side of enterprise. In Adventure in Thought and Action: Proceedings of the Fifth Anniversary Convocation of the School of Industrial Management. Massachusetts Institute of Technology, Cambridge, MA.

Van De Ven, A. H., Ganco, M., & Hinings, C. R. (2013). Returning to the frontier of contingency theory of organizational and institutional designs. The Academy of Management Annals, 7, 393-440.

Christensen, C. M. (2016). The innovators dilemma: when new technologies cause great firms to fail. Boston, MA: Harvard Business Review Press.

Lewis, R. D. (2005). When cultures collide: Leading across cultures (3rd ed.). Boston, MA: Nicholas Brealey Publishing.

Mackey, J., & Sisodia, R. (2014). Conscious capitalism: liberating the heroic spirit of business. Boston, MA: Harvard Business Review Press.

Gardner, H. E. (2006). Multiple Intelligences: New Horizons in Theory and Practice. New York: Basic Books.

Mitchell, B., & Gamlem, C. (2017). The big book of HR. Wayne, NJ: Career Press.

Freud, S., & Hall, G. S. (2016). A general introduction to psychoanalysis. United States: S. Freud.

Conley, C. (2017). Peak: How great companies get their mojo from Maslow. Hoboken, NJ: Jossey-Bass

Mitchell, B., & Gamlem, C. (2015). The essential workplace conflict handbook: a quick and handy resource for any manager, team leader, HR professional, or anyone who wants to resolve disputes and increase productivity. Pompton Plains, NJ: Career Press.

Green, N., Ryan, K., & Levy, M. (n.d.). The correct way to terminate an employee. Human Resources 4U. Retrieved from http://www.humanresources4u.com/cms_files/original/How_to_Terminate_an_Employee1.pdf

Siwalk, S. (2017). Compliance checklist: Federal employment laws you need to know at every stage of your company's growth. Zenefits. Retrieved from https://www.zenefits.com/blog/compliance-checklist-each-company-size-threshold/

U.S. Department of Labor Wage and Hour Division. (2011). The fair labor standards act of 1938, as amended. WH Publication 1318. Retrieved from https://www.dol.gov/whd/regs/statutes/FairLaborStandAct.pdf

U.S. Department of Labor Wage and Hour Division. (2014). Fact sheet #13: Am I an employee?: Employment relationship under the fair labor standards act (FLSA). Retrieved from https://www.dol.gov/whd/regs/compliance/whdfs13.pdf

US Department of Labor, 2008. Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA) Pamphlet] [https://www.dol.gov/whd/overtime/fs17a_overview.pdf

EEOC. (1986). 35th anniversary: The law. Retrieved from https://www.eeoc.gov/eeoc/history/35th/thelaw/irca.html

The U.S. Department of Labor. (n.d.a). The U.S. department of labor ERISA at 40 timeline.

Retrieved from https://www.dol.gov/featured/erisa40/timeline and https://legcounsel.house.gov/Comps/Employee%20Retirement%20Income%20Security%20Act%20Of%201974.pdf

Legal Information Institute. (n.d.a). 26 U.S. code, chapter 21 - Federal insurance contributions act. Cornell University. Retrieved from https://www.law.cornell.edu/uscode/text/26/subtitle-C/chapter-21

U.S. Equal Employment Opportunity Commission. (n.d.a). The equal pay act of 1963. Retrieved from https://www.eeoc.gov/laws/statutes/epa.cfm

Chao, E. L. (2005). Women in the Labor Force: A databook. Bureau of Labor Statistics: Report 985.

Uniformed Services Employment and Reemployment Rights Act of 1994. (n.d.). Retrieved September 24, 2017, from https://www.justice.gov/crt-military/uniformed-services-employment-and-reemployment-rights-act-1994

Legal Information Institute. (n.d.b). Fishgold v. Sullivan Drydock & Repair Corporation. Cornell Law School. Retrieved from https://www.law.cornell.edu/supremecourt/text/328/275

National Labor Relations Board. (n.d.). National labor relations act. Retrieved from https://www.nlrb.gov/resources/national-labor-relations-act

Biddle Consulting Group. (2015). Uniform guidelines on employee selection procedures. Retrieved from http://www.uniformguidelines.com/uniformguidelines.html

Society for Human Resource Management (SHRM). (2017). Employment law. Retrieved from https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/default.aspx

United States Department of Labor. (n.d.b). Employee polygraph protection act (EPPA). Wage and Hour Division. Retrieved from https://www.dol.gov/whd/polygraph/

U.S. Securities and Exchange Commission. (2013).The laws that govern the securities industry. Retrieved from https://www.sec.gov/answers/about-lawsshtml.html

United States Department of Labor. (n.d.c). Federal wage garnishments. Wage and Hour Division. Retrieved from https://www.dol.gov/whd/garnishment/

Association of Corporate Council (ACC). (2011). Legal resources: The fair and accurate credit transactions act (FACTA). Retrieved from http://www.acc.com/legalresources/quickcounsel/tfaacta.cfm

Public Law 104-191. (1996). Health insurance portability and accountability act of 1996. Retrieved from https://www.congress.gov/104/plaws/publ191/PLAW-104publ191.pdf

United States Department of Labor. (n.d.d). Public law 91-596. Occupational Safety and Health Administration. Retrieved from https://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=OSHACT&p_id=2743

Americans with disabilities act of 1990, as amended. (n.d.). Title 42 - The public health and welfare. Retrieved from https://www.ada.gov/pubs/adastatute08.htm

U.S. Equal Employment Opportunity Commission (EEOC). (2008). The genetic information nondiscrimination act of 2008. Retrieved from https://www.eeoc.gov/laws/statutes/gina.cfm

Legal Information Institute. (n.d.c). Kimel vs. Florida board of regents. Cornell University Law School. Retrieved from

Gomez-Perez v. Potter 553 U.S. 474 (2008). (n.d.). Retrieved September 24, 2017, from https://supreme.justia.com/cases/federal/us/553/474/

Kimel v. Florida Bd. of Regents 528 U.S. 62 (2000). (n.d.). Retrieved September 24, 2017, from https://supreme.justia.com/cases/federal/us/528/62/

U.S. Equal Employment Opportunity Commission (EEOC), n.d.) The Age Discrimination in Employment Act of 1967 Retrieved from https://www.eeoc.gov/laws/statutes/adea.cfm

Pending: https://www.eeoc.gov/laws/statutes/adea.cfm

Govtrack. (n.d.). H.R. 3128 (99th): Consolidated omnibus budget reconciliation act of 1985. Retrieved from https://www.govtrack.us/congress/bills/99/hr3128/text

Healthcare.gov. (n.d.e). Read the affordable care act. Retrieved from https://www.healthcare.gov/where-can-i-read-the-affordable-care-act/

United States Department of Labor. (n.d.e). The family and medical leave act of 1993, as amended. Wage and Hour Division. Retrieved from https://www.dol.gov/whd/fmla/fmlaAmended.htm

United States Department of Labor. (2016). Jobs for veterans act. Employment and Training Administration. Retrieved from https://www.doleta.gov/programs/VETS/

United States Department of Labor. (n.d.f). Regulations implementing the Vietnam era veterans' readjustment assistance act. Office of Federal Contract Compliance Programs (OFCCP). Retrieved from https://www.dol.gov/ofccp/regs/compliance/vevraa.htm

United States Department of Labor. (n.d.g). Executive order 11246 -- Equal employment opportunity. Office of Federal Contract Compliance Programs (OFCCP). Retrieved from https://www.dol.gov/ofccp/regs/compliance/ca_11246.htm

United States Department of Labor. (2015). Worker adjustment and retraining notification (WARN) act compliance assistance materials. Employment and Training Administration. Retrieved from https://www.doleta.gov/layoff/warn.cfm

U.S. Equal Employment Opportunity Commission. (n.d.b). EEO-1 Frequently asked questions and answers. Retrieved from https://www.eeoc.gov/employers/eeo1survey/faq.cfm

United States Department of Labor. (n.d.h). Davis-Bacon and related acts. Wage and Hour Division. Retrieved from https://www.dol.gov/whd/contracts/dbra.htm

United States Department of Labor. (n.d.i). Drug-free workplace act of 1988. Elaws: Employment Laws Assistance for Workers & Small Businesses. Retrieved from http://webapps.dol.gov/elaws/asp/drugfree/screen4.htm

U.S. Department of Labor - Employment Standards Administration. (2009). Contract work hours and, safety standards act, as amended. Wage and Hour Division. Received from https://www.dol.gov/whd/regs/statutes/safe01.pdf

United States Department of Labor. (n.d.j). McNamara-O'Hara service contract act (SCA). Wage and Hour Division. Retrieved from https://www.dol.gov/whd/govcontracts/sca.htm

United States Department of Labor. (n.d.k). Executive order 11246 -- Equal employment opportunity. Office of Federal Contract Compliance Programs (OFCCP). Retrieved from https://www.dol.gov/ofccp/regs/compliance/ca_11246.htm

United States Department of Labor. (n.d.l). Regulations implementing the Vietnam era veterans' readjustment assistance Act. Office of Federal Contract Compliance Programs (OFCCP). Retrieved from https://www.dol.gov/ofccp/regs/compliance/vevraa.htm

National Association of the Deaf. (2017). Rehabilitation act of 1973. Retrieved from https://www.nad.org/resources/civil-rights-laws/rehabilitation-act-of-1973/

United States Department of Labor. (n.d.m). Compliance assistance - Walsh-Healey public contracts act (PCA). Wage and Hour Division. Retrieved from https://www.dol.gov/whd/govcontracts/sca.htm Retrieved from https://www.dol.gov/whd/govcontracts/pca.htm

United States Department of Labor. (n.d.n). Copeland "anti-kickback" act. Wage and Hour Division. Retrieved from https://www.dol.gov/whd/govcontracts/pca.htm Retrieved from https://www.dol.gov/whd/regs/statutes/copeland.htm

Gallup, I. (2014 - 2017). Gallup Daily: U.S. Employee Engagement. Retrieved September 24, 2017, from http://news.gallup.com/poll/180404/gallup-daily-employee-engagement.aspx

Bailey, C., Madden, A., Alfes, K., Fletcher, L., Robinson, D., Holmes, J., . . . Currie, G. (2015). Evaluating the evidence on employee engagement and its potential benefits to NHS staff: a narrative synthesis of the literature. Health Services and Delivery Research, 3(26), 1-424. doi:10.3310/hsdr03260

Bakker, A. (2006). The measurement of work engagement with a short questionnaire a cross-national study. Educational and Psychological Measurement. Retrieved from https://www.academia.edu/2997274/The_measurement_of_work_engagement_with_a_short_questionnaire_a_cross-national_study?auto=download)

Hrala, L. (2016). The world happiness index 2016 just ranked the happiest countries on earth. Science Alert. Retrieved from http://www.sciencealert.com/the-world-happiness-index-2016-just-ranked-the-happiest-countries-on-earth

Sgroi, D. (2015). Happiness and productivity: Understanding the happy-productive worker. Cage. Retrieved from http://smf.co.uk/wp-content/uploads/2015/10/Social-Market-Foundation-Publication-Briefing-CAGE-4-Are-happy-workers-more-productive-281015.pdf

Kerner, R. L., Gallo, K., Cassara, M., D'Angelo, J., Egan, A., & Simmons, J. G. (2016). Simulation for Operational Readiness in a New Freestanding Emergency Department: Strategy and Tactics. Simulation in Healthcare, 11(5), 345-356. Retrieved from https://www.ncbi.nlm.nih.gov/pubmed/21887939

Lowe, G. (2012). How Employee Engagement Matters for Hospital Performance. Healthcare Quarterly, 15(2), 29-39. doi:10.12927/hcq.2012.22915

Collier, S. L., Fitzpatrick, J.J., Siedlecki, S.L., Dolansky, M.A. (2016). Employee engagement and a culture of safety in the intensive care unit. Journal of Nurse Administration, 46(1), 49-54. Retrieved from https://www.ncbi.nlm.nih.gov/pubmed/26641471

Myers, M. C. (2013). The added value of the positive: A literature review of positive psychology interventions in organizations. European Journal of Work and Organizational Psychology, 22(5), 618-632. Retrieved from http://www.tandfonline.com/doi/full/10.1080/1359432X.2012.694689?scroll=top&needAccess=true

Bolier, L., Haverman, M., Westerhof, G. J., Riper, H., Smit, F., & Bohlmeijer, E. (2013). Positive psychology interventions: a meta-analysis of randomized controlled studies. BMC Public Health, 13, 119. Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3599475/

Kaplan, S., Bradley-Geist, J. C., Ahmad, A. et al. (2014). A test of two positive psychology interventions to increase employee well-being. Journal of Business Psychology, 29, 367. Retrieved from http://link.springer.com/article/10.1007/s10869-013-9319-4

Sansone, R. A., & Sansone, L. A. (2010). Gratitude and well-being: The benefits of appreciation. Psychiatry (Edgmont), 7(11), 18-22. Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3010965/

Proyer, R. T., Gander, F., Wellenzohn, S., & Ruch, W. (2015). Strengths-based positive psychology interventions: a randomized placebo-controlled online trial on long-term effects for signature strengths- vs. a lesser strengths-intervention. Frontiers in Psychology, 6, 456.Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4406142/

Toyota. (2017). Toyota production system. Retrieved from http://www.toyota.com.au/toyota/company/operations/toyota-production-system

Von Thiele Schwarz, U., Nielsen, K. M., Stenfors-Hayes, T., & Hasson, H. (2017). Using kaizen to improve employee well-being: Results from two organizational intervention studies. Human Relations; Studies towards the Integration of the Social Sciences, 70(8), 966-993. Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5502903/

Mishel, L. & Davis, A. (2015). Top ceos make 300 times more than typical workers. Economic Policy Institute. Retrieved from http://www.epi.org/publication/top-ceos-make-300-times-more-than-workers-pay-growth-surpasses-market-gains-and-the-rest-of-the-0-1-percent/

Keegan, P. (2017). Here's what really happened at that company that set a $70,000 minimum wage. Inc. Retrieved from http://www.inc.com/magazine/201511/paul-keegan/does-more-pay-mean-more-growth.html

Petersen, B. (2009). Japan airline boss sets exec example. CBS Evening News. Retrieved from http://www.cbsnews.com/news/japan-airline-boss-sets-exec-example/

Robbins, T. (2016). Are you treating your employees like raving fans? Retrieved from https://www.tonyrobbins.com/career-business/treating-employees-like-raving-fans/

Manjoo, F. (2013). The Happiness Machine. Slate. Retrieved from http://www.slate.com/articles/technology/technology/2013/01/google_people_operations_the_secrets_of_the_world_s_most_scientific_human.html

Pontefract, D. (2015). What is happening at Zappos? Forbes. Retrieved from http://www.forbes.com/sites/danpontefract/2015/05/11/what-is-happening-at-zappos/#298a942d31b3

Glassman, B. (2013). What Zappos taught us about creating the ultimate client experience. Forbes. Retrieved from http://www.forbes.com/sites/advisor/2013/05/13/what-zappos-taught-us-about-creating-the-ultimate-client-experience/#2eabaefe6c69

Rowland, C. (2017). Whole Foods Market's organizational culture analysis. Panmore Institute. Retrieved from http://panmore.com/whole-foods-market-organizational-culture-analysis

ICMR. (2006).Whole Foods Market's unique work culture and practices. Retrieved from http://www.icmrindia.org/casestudies/catalogue/Human%20Resource%20and%20Organization%20Behavior/HROB086.htm

Cialdini, R. B. (2006). Influence: the psychology of persuasion: Robert B. Cialdini. New York: Collins.

Carpenter, C. J. (2013). A meta-analysis of the effectiveness of the "but you are free" compliance-gaining technique. Communication Studies, 64(1). Retrieved from http://www.tandfonline.com/doi/full/10.1080/10510974.2012.727941?scroll=top&needAccess=true

Santana, S. & Morwitz, V. (2015). Because we're partners: How social values and relationship norms influence consumer payments in pay-what-you-want contexts. Advances in Consumer Research Volume, 43, 7-11. Retrieved from http://www.acrwebsite.org//volumes/1020220/volumes/v43/NA-43

Mandel, N. & Johnson, E. J. (2002). When web pages influence choice: Effects of visual primes on experts and novice. Journal of Consumer Research, 29(2), 235. Retrieved from https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/1156/when_web_pages_influence_choice.pdf

Zajonc, R. B. (1968). Attitudinal effects of mere exposure. Journal of Personality and Social Psychology, 9. Retrieved from http://www.psc.isr.umich.edu/dis/infoserv/isrpub/pdf/Theattitudinaleffects_2360_.PDF

Kunst-Wilson, W. R. & Zajonc, R. B. (1980). Affective discrimination of stimuli that cannot be recognized. Science, 207, 557-558. Retrieved from https://pdfs.semanticscholar.org/be14/ea303efd03fe5defbed796852d496b0265a7.pdf

Miller, R. L. (1976). Mere exposure, psychological reactance and attitude change. Public Opinion Quarterly, 40 (2), 229-33. Retrieved from https://eric.ed.gov/?id=EJ173383

Worchel, S., Lee, J., & Adewole, A. (1975). Effects of supply and demand on ratings of object value. Journal of Personality and Social Psychology, 32(5), 906-914. Retrieved from http://psycnet.apa.org/record/1976-03817-001

Kahneman, D. & Tversky, A. (1992). Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty, 5 (4): 297-323. Retrieved from http://psycnet.apa.org/record/1976-03817-001

Harms, W. (2012). Student performance improves when teachers given incentives upfront. UChicago News. Retrieved from https://news.uchicago.edu/article/2012/08/08/student-performance-improves-when-teachers-given-incentives-upfront

Miller, G. (1956). The magical number seven, plus or minus two. Psychological Review, 63, 81-97. Retrieved September 24, 2017, from https://www.ncbi.nlm.nih.gov/pubmed/13310704.

Bryan, C. J., Walton, G. M., Rogers, T., & Dweck, C.S. (2011). Motivating voter turnout by invoking the self. PNAS. Retrieved from http://www.pnas.org/content/108/31/12653.abstract

Mortensen, C. R. & Cialdini, R. B. (2010). Full-cycle social psychology for theory and application. Social and Personality Psychology Compass, 4, 53-63. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1751-9004.2009.00239.x/abstract

Carnegie Melon University. (n.d.). Researching the pain of paying. Retrieved from http://www.cmu.edu/homepage/practical/2007/winter/spending-til-it-hurts.shtml

Lee, F., Peterson, C., & Tiedens, L. Z. (2004). Mea Culpa: Predicting Stock Prices From Organizational Attributions. Personality and Social Psychology Bulletin, 30(12), 1636-1649. Retrieved from http://psp.sagepub.com/content/30/12/1636.abstract

Leventhal, H., Singer, R., & Jones, S. (1965). Effects of fear and specificity of recommendation upon attitudes and behavior. Journal of Personality and Social Psychology, 2(1), 20-29. doi:10.1037/h0022089

Zhang, X., Liu, L., Zhao, X., Zheng, J., Yang, M., & Zhang, J. (2015). Towards a three-component model of fan loyalty: A case study of Chinese youth. PLoS ONE, 10(4), e0124312. Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4401450/

Sarial-Abi, G., Vohs, K.D., Hamilton, R., & Ulqinaku, A. (2015). New wine in old bottles: Death awareness makes people prefer vintage products due to a desire to connect to the past, present, and future. Advances in Consumer Research, 43, 142-146.http://www.acrwebsite.org//volumes/1019448/volumes/v43/NA-43

O'Donoghue, T. & Rabin, M. (2000). The economics of immediate gratification. Journal of Behavioral Decision Making, 13, 233-250. https://www.researchgate.net/publication/240126085_The_Economics_of_Immediate_Gratification

Tajfel, H., Billig, M. G., Bundy, R. P. and Flament, C. (1971). Social categorization and intergroup behaviour. European Journal of Social Psychology, 1,149-178. Retrieved from http://onlinelibrary.wiley.com/doi/10.1002/ejsp.2420010202/abstract

Smith, R. (2015). Group-member magnification: Brand entitativity polarizes judgments of products. Advances in Consumer Research Volume, 43, 691. Retrieved from http://www.acrwebsite.org//volumes/1019962/volumes/v43/NA-43

Carmon, Z. & Ariely, D. (n.d.). Focusing on the forgone: How value can appear so different to buyers and sellers. Duke University. Retrieved from http://people.duke.edu/~dandan/webfiles/PapersPI/Value%20Buyer%20and%20Seller.pdf

Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). Anomalies: The endowment effect, loss aversion, and status quo bias. The Journal of Economic Perspectives, 5(1), 193-206. Retrieved from https://www.princeton.edu/~kahneman/docs/Publications/Anomalies_DK_JLK_RHT_1991.pdf

Hauert, C. (2005). Public goods games. University of Vienna. Retrieved from http://www.univie.ac.at/virtuallabs/PublicGoods/index.html#pgg

Janssen, M., & Ahn, T. K. (2003). Adaptation vs. anticipation in public-good games. American Political Science Association.

Andreoni, J., Harbaugh, W., & Vesterlund, L. (2003). The carrot or the stick: Rewards, punishments, and cooperation. The American Economic Review, 93 (3), 893-902.

Sefton, M., Shupp, R., & Walker, J. M. (2007). The effect of rewards and sanctions in provision of public goods. Economic Inquiry, 45 (4), 671-690.

Propaganda For Change. (2014). Behaviour change. Retrieved from http://persuasion-and-influence.blogspot.ca/2014/02/get-your-foot-in-door.html

American Psychological Association (APA). (2016a). Guidelines for ethical conduct in the care of non-human animals in research. Retrieved from http://www.apa.org/science/leadership/care/guidelines.aspx

American Psychological Association (APA). (2016b). Lab animal welfare. Retrieved from http://www.apa.org/research/responsible/animal/index.aspx

Back, K. W., Bogdonoff, M. D., Shaw, D. M., & Klein, R. F. (1963). An interpretation of experimental conformity through physiological measures. Behavioral Science, 8(1), 34.

Behnke, S. (2004a). Informed consent and APA's new ethics code: Enhancing client autonomy, improving client care. American Psychological Association, 35(6), 80. Retrieved from http://www.apa.org/monitor/jun04/ethics.aspx

Behnke, S. (2004b). Disclosures of confidential information under the new APA Ethics Code: a process for deciding when and how. American Psychological Association, 35(8), 70. Retrieved from http://apa.org/monitor/sep04/ethics.aspx

Danko, M. (2016). 10 famous psychological experiments that could never happen today. Mental Floss. Retrieved from http://mentalfloss.com/article/52787/10-famous-psychological-experiments-could-never-happen-today

The Huffington Post. (2015). The daring racism experiment that people still talk about 20 years later. Retrieved from http://www.huffingtonpost.com/2015/01/02/jane-elliott-race-experiment-oprah-show_n_6396980.html

McLeod, S. (2008). Robbers cave. Simply Psychology. Retrieved from http://www.simplypsychology.org/robbers-cave.html

Nemade, R., Reiss, N.S. & Dombeck, M. (2007). Cognitive theories of major depression - Seligman. MentalHelp.net. Retrieved from https://www.mentalhelp.net/articles/cognitive-theories-of-major-depression-seligman/

PsyBlog. (2016). The 'monster study' on stuttering. Retrieved from http://www.spring.org.uk/2007/06/monster-study.php

Sandplay. (2016). APA ethical guidelines for research. Retrieved from http://www.sandplay.org/pdf/APA_Ethical_Guidelines_for_Research.pdf

Sherif, M. (1958). Superordinate goals in the reduction of intergroup conflict. American Journal of Sociology, 349-356.

Smith, D. (2003). Five principles for research ethics: Cover your bases with these ethical strategies. American Psychological Association, 34 (1), 56. Retrieved from http://www.apa.org/monitor/jan03/principles.aspx

Stanford Prison Experiment. (2016). The story: An overview of the experiment. Retrieved from http://www.prisonexp.org/the-story

Ferguson, N. (2012). The Ascent of Money. New York, NY: Penguin Books Ltd.

Cagan, M. (2016). Stock market 101: from bull and bear markets to dividends, shares, and margins: your essential guide to the stock market. Avon, MA: Adams Media.

Yamarone, R. (2012). The traders guide to key economic indicators. Hoboken, NJ: Wiley.

Investopedia. (n.d.). Bollinger bands. Retrieved from http://www.investopedia.com/terms/b/bollingerbands.asp

Forexop. (n.d.). Bollinger bands: Four basic trading strategies. Retrieved from http://forexop.com/learning/bollinger-bands-basics/

Aristotle. (2013). Aristotle's politics (2nd ed.)

Aristotle. (2012). Aristotle's Nicomichean ethics. Chicago: University Of Chicago

Xu, H., Kang, M., Fu, C., Goh, G., & Koh, K. K. (2008). Golden rules: Tao Zhugongs art of business. Singapore: Asiapac.

Aquinas, T. (1981). The "Summa theologica" of St. Thomas Aquinas. Notre Dame: Christian Classics.

C.W. (2013). What was mercantilism? The Economist. Retrieved from https://www.economist.com/blogs/freeexchange/2013/08/economic-history

The School of Salamanca. (n.d.). Salamanca. Retrieved from http://www.hetwebsite.net/het/schools/salamanca.htm

Zera. (2013). The Last Salamancans Lessius and De Lugo. Economic Theories. Retrieved from http://www.economictheories.org/2008/08/last-salamancans-lessius-and-de-lugo.html

Staff, I. (2016, February 18). Time Value of Money - TVM. Retrieved September 24, 2017, from http://www.investopedia.com/terms/t/timevalueofmoney.asp

More, S. T. (2015). Utopia paperback. CreateSpace Independent Publishing Platform.

Rothbard, M. N. (n.d.). Austrian perspective on the history of economic thought (2nd vol.).

Alabama: Mises Institute. Retrieved from http://store.mises.org/Austrian-Perspective-on-the-History-of-Economic-Thought-2-volume-set-P273C0.aspx?utm_source=Mises_Daily&utm_medium=Embedded_Link&utm_campaign=Item_in_Daily

Economic History Society. (1997). Economic history review. The Economic History Review, 50(3)407-61. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/ehr.1997.50.issue-3/issuetoc

Bodin, J., Malestroit, J. D., Dyson, R. W., & Tudor, H. (1997). Response to the paradoxes of Malestroit. Bristol: Thoemmes Press.

Fox, A. (n.d.). Sir William Petty, Ireland, and the making of a political economist, 1653-1687. Retrieved from http://www.shca.ed.ac.uk/staff/supporting_files/apfox/fox-pub1.pdf

Petty, W. (1899). Verbum Sapienti. The Economic Writings of Sir William Petty. Retrieved from http://oll.libertyfund.org/titles/petty-the-economic-writings-of-sir-william-petty-vol-1

Vaughn, K. I. (2012). John Locke, economist and social scientist. Chicago: University Of Chicago Press.

Hobbes, T. (2017). Leviathan. CreateSpace Publishing Platform.

Hume, D. (2015). On the balance of trade. Wallachia Publishers.

North, D. (1971). Discourses upon trade, principally directed to the cases of the interest, coynage, clipping, increase of money. London: Tho. Basset.

Rothbard, M. N. (2011). Francis Hutcheson: Teacher of Adam Smith. Mises Institutes. Retrieved https://mises.org/library/francis-hutcheson-teacher-adam-smith

Hitchens, S. W. (n.d.). Adam Smith and Carl Menger: Value additives with a hint of objectivity. Rebirth of Reason.

The Concise Encyclopedia of Economics. (2008a). Jean-Baptiste Say (1767-1832). Retrieved from http://www.econlib.org/library/Enc/bios/Say.html

Say, J. (1834). A treatise on political economy (6th ed.). Philadelphia: Grigg & Elliott.

Ricardo, D. (2004). The principles of political economy and taxation. Mineola: Dover publications.

Mill, J. S. (2004). Principles of political economy, with some of their applications to social philosophy. Hackett Publishing Company, Inc.

Marx, K. (2011). Das Kapital: A critque of political economy. CreateSpace Independent Publishing Platform.

Georgescu-Roegen, N. (1971). Entropy law and the economic process. Cambridge, MA.

Marshall, A. (2013). Principles of economics. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.

Pigou, A. C. (2014). Wealth and welfare: primary source edition. Nabu Press.

The Concise Encyclopedia. (2008b). Arthur Cecil Pigou (1877-1959).

Menger, C., Dingwall, J., Hoselite, B. F., & Knight, F. H. (2015). Principles of economics: first, general part: French version. Encyclopaedia Universalis.

Walras, L. (2010). Elements of Pure Economics. Routledge.

Long, K. E. (2015). Macroeconomics: Austrians vs. Keynesians. CreateSpace Publishing Platform.

Schumpeter, J. A. (2017). Business cycles: a theoretical, historical, and statistical analysis of the capitalist process. Mansfield Centre, CT: Martino Pub.

Zera. (n.d.). Friedrich von Wieser Biography Theory. Retrieved September 28, 2017, from http://www.economictheories.org/2008/08/friedrich-von-wieser-biography-theory.html

Chamberlin, E. (1939). The theory of monopolistic competition. Cambridge: Harvard University Press.

Robinson, J. (1969). The economics of imperfect competition (2nd ed.). Basingstoke: Palgrave.

Bohm-Bawerk, E. V. (2011). Capital and Interest: a Critical History of Economical Theory. Eastbourne: Terra Libertas Ltd.

Long, K. E. (2015). Macroeconomics: Austrians vs. Keynesians. CreateSpace Publishing Platform.

Boulding, K. E. (1955). Economics analysis. New York: Harper.

Tainter, J. A. (1990). The collapse of complex societies. Cambridge University Press.

Findlay, R., Jonung, L., & Lundahl, M. (2002). Bertil Ohlin: A centennial celebration, 1899-1999. Cambridge, MA: MIT Press.

Berger, S. (2008). Circular cumulative causation (CCC) à la Myrdal and Kapp -- Political institutionalism for minimizing social costs. Journal of Economic Issues.

Bradizza, L. (2013). Richard t. elys critique of capitalism. Palgrave Macmillan.

Galbraith, J. K. (1998). Affluent society. Boston, MA: Houghton Mifflin.

Galbraith, J. K. (1976). Economics and the public purpose. Deutsch.

Buchannan, J. (1987). The new Palgrave: a dictionary of economics. Basingstoke: Palgrave.

Bryan, Michael F., and Christopher J. Pike, 1991. "Median Price Changes: An Alternative Approach to Measuring Current Monetary Inflation," Federal Reserve Bank of Cleveland, Economic Commentary, 12.01.1991.

Holcombe, R. G. (2014). Advanced introduction to the Austrian school of economics. Cheltenham, UK: Edward Elgar.

Hayek, F. A., & Hanson, C. G. (1984). 1980s unemployment and the unions: essays on the impotent price structure of Britain and monopoly in the labour market. London: Institute of Economic affairs.

Arrow, K. & Debreu, G. (1954). Existence of equilibrium for a competitive economy. Econometrica. Retrieved from https://www.researchgate.net/publication/247873428_Existence_of_an_Equilibrium_for_a_Competitive_Economy

Starr, R. M. (1989). General equilibrium models of monetary economies. Studies in Static Foundations of Monetary Theory. Retrieved from http://www.sciencedirect.com/science/book/9780126639704

Buchanan, J. M. (1987). Opportunity cost. The New Palgrave: A Dictionary of Economics, 3, 718-21.

Bryan, M. F. & Pike, C. J. (1991). Median price changes: An alternative approach to measuring current monetary inflation, Federal Reserve Bank of Cleveland, Economic Commentary.

Berle, A. A. (1991). Modern corporation and private property. Routledge.

Keynes, J. M. (2016). The general theory of employment, interest and money. Stellar Classics.

Overtveldt, J. V. (2009). The Chicago School: How the University of Chicago assembled the thinkers who revolutionized economics and business. Agate.

Ebenstein, A. O. (2012). The indispensable Milton Friedman essays on politics and economics. Washington, D.C.: Regnery Pub.

Lucas, R. E., & Gillman, M. (2013). Collected papers on monetary theory. Cambridge, MA: Harvard University Press.

Sargent, T. J. (n.d.). Rational Expectations. Retrieved September 24, 2017, from http://www.econlib.org/library/Enc/RationalExpectations.html

Chow, G. (2011). Usefulness of Adaptive and Rational Expectations in Economics . CEPS Working Paper No. 221 . Retrieved September 24, 2017, from https://www.princeton.edu/ceps/workingpapers/221chow.pdf.

Duca, J. V. (2013). Subprime Mortgage Crisis. Retrieved September 28, 2017, from https://www.federalreservehistory.org/essays/subprime_mortgage_crisis
