The Trainee Grunt Work Dilemma, Explained by Northwestern Prof Luis Rayo
Working alongside colleague Drew Fudenberg—the Paul A. Samuelson Professor of Economics at MIT—Northwestern University Kellogg School of Management Professor of Strategy Luis Rayo asks, does the trainee grunt work dilemma make complete economic sense?
Kellogg Insight author John Pavlus talks with both Rayo and Fudenberg about their new research on the topic, “to determine whether the relationship most resembled an economic quid pro quo, or something more akin to a prolonged test of skill, or merely a rite of passage.”
“Master-level knowledge is extremely valuable, but also very difficult to transfer efficiently,” writes Kellogg Insight author John Pavlus.
The “fundamental economic problem” Rayo faced when he was studying under a professor during his undergraduate tenure is that “master-level knowledge is extremely valuable, but also very difficult to transfer efficiently.”
“Consider an idealized transaction between a master sushi chef and an unskilled protégé: the protégé, ideally, would simply ‘buy’ the expertise he wants for a fair price up front, just as he would for any durable good. Unfortunately, the cash value of the chef’s accumulated knowledge is likely to exceed any amount a novice could possibly afford.”
Rayo and Fudenberg find that if the trainee cannot immediately “pay” (hypothetically) for the training, then the person training them is not in a position to “drop everything” and help them learn. In contrast, if the person training them offers to let the trainee pay them back down the line, then the trainee has unfair leverage in the economic exchange.
“Given this economic impasse—a novice wishes to ‘buy’ knowledge that she cannot currently afford from a master who cannot reliably extract payment for it in the future—how can the two parties make their exchange?”
The (Potential) Trainee Grunt Work Solution
Rayo and Fudenberg’s potential solution is a mathematical model where “the master and novice simultaneously choose how much time and effort to expend working with each other.”
“One way to profit from your novice is to keep him around working for a long time by training him slowly,” Rayo tells Pavlus. “Maybe his brain would be able to learn all of your knowledge in one or two years, but you might take ten years.”
The trainee grunt work dilemma arises often early in the training process. Considering those starting their careers are not often economically in a stronger position than the person training them, the trainee needs to work, but doesn’t yet have the requisite knowledge to complete higher-level work. However, Rayo argues, there is a benefit.
“In professions where there’s a considerable amount of knowledge to transfer, the model predicts that you’ll tend to observe large amounts of menial work early in the relationship,” he says.
To curb instances where the trainer overworks the trainee, or forces them to do tasks that are not related to the productivity of the job (such as hazing), Rayo and Fudenberg argue regulations need to be in order.
“For example, in 2003 the Accreditation Council for Graduate Medical Education introduced rules restricting the average number of hospital work-hours for medical residents to 80 per week. But Rayo’s model predicts that this kind of regulation will simply induce the hospital ‘masters’ to extend the length of medical residencies to compensate. And there are, indeed, places where this is happening.”
Rayo says, “If you’re serious about regulating these employment relationships, the model shows that it’s better to limit hours worked and limit the overall length of the apprenticeship at the same time.”
While the thought of regulation makes some shudder, Rayo argues its for the greater good. “What masters lose from the regulation is less than what apprentices gain from it.”
Check out Pavlus’ story “Why Do Trainees Get Stuck with So Much Grunt Work?” over at Kellogg Insight.
Religious Spending, Taking Risks, and More – Boston News
Let’s explore some of the most interesting stories that have emerged from Boston business schools this week.
Shoppers with Strong Religious Beliefs Spend Less and Make Fewer Impulse Purchases – Harvard Business Review
The Harvard Business School recently published an article in the Harvard Business Review that illuminates a fascinating correlation between grocery spending and religiosity—as the latter rises, the former falls.
The researchers write, “We found that for each 20 percent increase in the number of religious adherents in a county, annual grocery sales per store decreases, on average, by about $125,000. [Our] results showed that shoppers living in more religious U.S. counties spent less money on groceries and also made fewer impulse purchases than those living in less religious U.S. counties.”
The implications of the research are vast and wide reaching, particularly for retailers. They explain further:
“Because being reminded about God increases shoppers’ frugality, they may be more sensitive to price discounts and promotions (such as “buy one, get one free”) around the time of religious holidays and observances. Getting a good deal, particularly on an impulse buy, is likely to alleviate shoppers’ heightened frugality.”
The researchers also speculate that “retailers may also allay religious shoppers’ concerns about being frugal by offering deals that demonstrate respect for their values, such as promising to donate a percentage of revenue from a particular product to a local charity.”
You can check out the full article here.
When Regulation Doesn’t Throttle Risk-Taking – Questrom School of Business Blog
New Management Science research from Questrom School of Business Accounting Professor Ana Albuquerque and Fudan University’s Julie Lei Zhu finds the positive impacts of the 2002 Sarbanes-Oxley Act (SOX), which required companies to implement internal controls on financial reporting.
According to the article, “not only did filing firms not decrease their investment activities, some measures suggested that firms actually increased their investments after the reporting requirements were put into place. Filing firms also appeared to benefit in other ways. Banks typically offered filing firms larger loans with lower collateral requirements compared to non-filing firms.”
Albuquerque writes, “Credit terms improved [for filing firms], because they were disclosing more information. The benefit was higher than the cost of compliance.”
You can read more here.
These 12 startups are Re-Imagining the Latin American Workplace and Workforce – MIT Sloan Newsroom
MIT Sloan recently announced the 12 Latin American finalists of the its global Inclusive Innovation Challenge, all of which will travel to São Paulo, Brazil in just a few weeks “where they will pitch their ideas at the IIC Latin America Celebration.”
According to the article, “the winner of each category then goes on to compete in November during the Global Grand Prize Gala at MIT. The gala includes four $250,000 prizes, one for each category.”
Initiative Director Erik Brynjolfsson writes, “If we employ inclusive innovation globally, it could be the best thing that ever happened to humanity. We can have more wealth, better health, and widely held prosperity.”
Here’s a quick overview of each of the 12 Latin American finalists:
- Interacpedia “connects university student teams with organizations to generate the development of new skills/jobs and opportunities.”
- Signa is a “platform that provides deaf people with online digital economy courses.”
- Sumá is a “fair marketing platform that connects family farmers with food buyers.”
- Alò Bodega is a “mobile app for Latin American and Asian corner stores.”
- Apli is an “artificial intelligence-enabled jobs marketplace.”
- Incluyeme is an “online job portal for people in Latin America with disabilities.”
- Grupo Nueva Economía is “developing new digital channels for small businesses and entrepreneurs.”
- Outbound Initiative “connects innovators from underrepresented regions — in this case Brazil — with business opportunities using data-combing artificial intelligence.”
- RedeDots is a “social network of more than 220,000 people engaged in the fair trade and sustainable business market.”
- LEVEE “uses machine learning, geolocation, and mobile messages to connect people with job opportunities.”
- Trocafone “aims to reduce e-waste by creating a marketplace for used electronics.”
- UnDosTres “offers Mexico residents mobile payment for services like prepaid cellphone recharging, movie ticket purchases, electricity, and phone bills.”
You can read more about the startups here.
Graziado Dean Writes Op-Ed on Ethical Implications of De-Regulation
Dean of Pepperdine’s Graziado School of Business and Management, Deryck J. van Rensburg, recently wrote an opinion piece that was published in U.S. News & World Report. The article analyzes the new administration’s marketplace de-regulation and what it could mean for businesses.
Stanford GSB Faculty Explain How Companies Exploit Uncertainty In Auctions
Stanford’s Graduate School of Business recently posted an article by Luke Stangel on how companies “leverage a flaw” when it comes to spectrum auctions where “assets of different types are bought or sold simultaneously.”
Sellinger Faculty Talk Microloans, Regulation and Investing to Baltimore Media
Professors from the Sellinger School of Business often serve as experts in the media. Here are a few excerpts of various faculty members sharing their knowledge on a range of business topics:
