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vi • Preface

DOES MANAGEMENT MATTER?

A recent study collected data on management practices and performance for a large set of
companies around the world to try to assess whether organizational design was important
for performance. Most of the policies analyzed were the kind discussed in this book, such
as the firm’s emphasis on continuous improvement, the extent to which it hires and retains
the best performers, and the use of targets and incentives.

Does management matter? Their evidence is that it does, significantly. The study found
that good management practices are strongly correlated with higher productivity, better
quality of products and services, and better odds that the firm will survive competition
and grow.

The researchers also found that management practices vary considerably within industries
and countries and across the world. Firms that face stronger competition, including by
competitors exporting from other countries, tend to have good practices. Multinational
firms also tend to have better practices. By contrast, government- and family- owned firms
tend to be less well managed. The fact that significant variation exists in management prac-
tices, even within the same industry in the same country, suggests that there is room for
improvement, especially in emerging markets.

Source: Bloom and van Reenen, 2010

WHAT IS PERSONNEL ECONOMICS?

It may seem odd to apply economics to human resource and general management top-
ics. In fact, it makes perfect sense. Economics is a methodology that has been applied to
many areas of human activity and has had enormous influence on the social sciences.
That methodology is quite flexible and can be applied to many problems involving
human behavior. The ability to apply a consistent methodology allows us to develop
a useful framework for studying organizational design.
Economists recognize two elements that drive human behavior. One is psychology
(preferences). Understanding preferences and their formation and evolution is the realm
of classical psychology. The second is the environment in which people act to attain
their goals. This is the realm of economics which focuses on budgets, prices, constraints,
information, and incentives. It also focuses on social interactions, because an employee’s
colleagues, manager, and customers play important roles in driving behavior.
This distinction between preferences and the environment is recognized in psychol-
ogy. The subfield of social psychology generally focuses on the impact of the environ-
ment on individual behavior—just like economics. The fields of social psychology and
personnel economics study many of the same issues, although from somewhat different
perspectives. This also means that what we often think of as psychology is not, in the
purest sense.
 Lazear f03.tex V2 - September 15, 2014 5:48 P.M. Page vii

What Is Personnel Economics? • vii

Because economics focuses on the effects of the environment on behavior, it gen-

erally starts with only crude assumptions about preferences of individual employees.
This is more of a virtue than it might seem. The more abstract and general the model,
the wider its applicability. Thus, in economics we may assume that employees attempt
to maximize their pay. By pay, we mean not only compensation, but also benefits, job
amenities, work environment, and other things offered by the firm that they might value.
A theory of pay for performance then has relevance for using any motivational tool, not
just cash.
The key part of the economic approach is to focus on how the environmental
variables—information, resources, constraints, decisions, and incentives—affect the
outcome. Those are the issues that are analyzed in this book. More often than not, the
analysis results in a statement of one or more important tradeoffs between benefits and
costs that must be balanced.
Two results of this approach are worth noting here. First, the economic tools that
we employ are used to analyze a variety of problems. This allows us to provide a more
structured approach to the topics covered in this book. By the end of the book, we will
be able to develop a framework for thinking about organizational design as a whole.
Second, economics focuses on variables that managers have a great deal of control
over. The primary factors analyzed in this book are information, decisions, investment,
and incentives. These are exactly the levers that managers tend to have the most ability
to pull to better design their organizations. It is much easier to alter the incentives than
to change the psychology of your workforce.
Recently many firms have begun using “workforce analytics” techniques to analyze
the design and effects of personnel policies such as recruiting, training, feedback, and
performance evaluation. Personnel economists have been doing the same for decades—
practice is finally catching up with the research. Scholars have collected many novel
datasets, drawn from personnel records and intranet systems inside firms, surveys of
employees and employers, matched worker-firm datasets collected by governmental sta-
tistical agencies, and experiments run by companies. Some of the examples we describe
in this book come from just this kind of research, and they illustrate that the concepts,
frameworks, and way of thinking presented in the book are even more practical in the
days of workforce analytics.
It was mentioned earlier that economics and social psychology are different fields
analyzing similar topics (organizational sociology could be added to this group as well).
There is a great deal of healthy dialogue (competitive and cooperative, as it should be)
between economists, social psychologists, and sociologists studying the issues covered
in this textbook. Personnel economics has grown out of this dialogue. It started as a
small subfield of labor economics. It then incorporated new insights from informational
economics to start studying management of employees inside firms. Over time, person-
nel economics became more refined and more successful and started to incorporate
insights, evidence, and topics from social psychology and organizational sociology. (It
can be argued that personnel economics is causing those fields to evolve as well.) Thus,
while our approach and emphasis is economics, this book is more properly thought of
as the result of an active debate between, and mixing of, different social sciences that
study management issues.
 Lazear f03.tex V2 - September 15, 2014 5:48 P.M. Page viii

viii • Preface

Of course, a full understanding of human resource management also requires the

study of psychology and sociology. This text does not pretend to be the final word on
organizational design. Rather, it is a strong complement to more traditional approaches,
as well as a fresh approach for most students and managers.
One final note: economics facilitates a relatively rigorous analysis of organizational
design. Many of the chapters in this book have appendices with more mathematical
discussion of key concepts. The appendices are available online at our Companion site,
http://www.Wiley.com/College/Lazear. We strongly encourage you to study the appen-
dices for each chapter as you work through the book.

WHO IS THIS BOOK FOR?

This book has several natural audiences. Undergraduates would benefit greatly from
studying the book. In fact, we believe that in most cases, they will benefit more by taking
a course using this book than they would by taking a traditional labor economics course.
Not only will they learn and apply ideas from microeconomics, such as incentive theory,
but they will learn principles that will be valuable in their careers.
We both teach MBA students and write this book from that perspective. It provides
a way to think about overall organizational design, as well as specific human resource
policies. Because MBAs tend to become consultants, general managers, or run organi-
zations themselves, the issues and approach used here are extremely relevant for such
students. Executive MBA students should also find the book useful. It will provide them
with rigorous frameworks to better understand and use their well-earned experience
and common sense to make it even more powerful and effective.
Although the focus of the book is on personnel policies and organizational design,
it is not written for a human resource specialist. Specialist texts focus on detailed exam-
ination of how to implement personnel policies, such as design of a pension plan or a
performance appraisal form. Nevertheless, the text should be extremely valuable to an
HR specialist, because it provides a strategic and analytical overview for human resource
policies. It provides the broader perspective that is necessary before focusing on the
details. For similar reasons, the sophisticated general manager who seeks a rigorous and
practical understanding of HR and organizational design may find this book to be a
more challenging read than most business books, but also of far more substance.

FURTHER READING
Abrahamson, Eric. 1996. Management fashion. Academy of Management Review 21(1):254–285.
Becker, Gary. 1976. The Economic Approach to Human Behavior. Chicago: University of Chicago
Press.
Bloom, Nicholas, and John Van Reenen. 2010. Why do management practices differ across coun-
tries? Journal of Economic Perspectives 24(1):203–224.
Brown, Roger. 1986. Social Psychology. New York: Free Press.
Lazear, Edward. 1995. Personnel Economics. Cambridge, MA: MIT Press.
 Lazear f04.tex V2 - September 15, 2014 5:48 P.M. Page ix

ACKNOWLEDGMENTS

T his book is based on our research and that of many others. We are indebted to
all researchers in this vibrant area of economics. Several colleagues have been especially
influential to our thinking over the years. These include George Baker, Gary Becker,
Michael Beer, Richard Hackman, Bengt Holmstrom, Kathryn Ierulli, Michael Jensen,
Kenneth Judd, Eugene Kandel, David Kreps, Kevin Murphy, Kevin J. Murphy, Paul
Oyer, Canice Prendergast, Melvin Reder, John Roberts, Sherwin Rosen, Kathryn Shaw,
and Robert Topel.
Many colleagues tested out drafts of this book with their students, for which we
are grateful. We received very helpful comments and suggestions on this and the
previous edition from Steve Bronars, Jed DeVaro, Tor Eriksson, Charles Fay, Kathleen
Fitzgerald, Mark Frascatore, Maia Guell, Joseph Guzman, Wally Hendricks, Mario
Macis, Marie Mora, Tim Perri, Erik de Regt, Valerie Smeets, Frederic Warzynski,
Niels Westergard-Nielsen, and Cindy Zoghi (who also kindly provided the data for
Figure 3.1).
We received substantial help and inspiration from our students who used various
drafts at the University of Chicago, Stanford, Aarhus University, and the Fondation
Nationale des Sciences Politiques (Sciences-Po).
Finally, we are grateful to our assistants John Burrows, Thomas Chevrier, Nadav
Klein, Maxim Mironov, Yi Rong, Yoad Shefi, Marie Tomarelli, and Olena Verbenko,
who gave thoughtful input on the text.

ix
 CONTENTS
ABOUT THE AUTHORS iii
PREFACE v
ACKNOWLEDGMENTS ix

PART ONE SORTING AND INVESTING IN EMPLOYEES 1

CHAPTER 1 SETTING HIRING STANDARDS 3
An Example: Hiring Risky Workers 3
New Hires as Options 3
Analysis 5
A Counterargument 7
Setting Hiring Standards 9
Balancing Benefits Against Costs 9
Foreign Competition 11
The Method of Production 12
How Many Workers to Hire? 15
Other Factors 16
Making Decisions with Imperfect Information 17
Make a Decision Independent of Analysis 17
Estimate the Relevant Information 17
Summary 19
Study Questions 20
References 21
Further Reading 21
Appendix (available online)

CHAPTER 2 RECRUITMENT 22
Screening Job Applicants 24
Credentials 25
Learning a Worker’s Productivity 26
For Whom Is Screening Profitable? 28
Probation 30
Signaling 32
Who Pays and Who Benefits? 35
Examples 35

x
 Contents • xi

Signaling More Formally: Separating

and Pooling Equilibria 36
Which Type of Firm Is More Likely
to Use Signaling? 38
Summary 38
Study Questions 40
References 40
Further Reading 41
Appendix (available online)

CHAPTER 3 INVESTMENT IN SKILLS 42

Matching 44
Investments in Education 45
Effects of Costs and Benefits 47
Was Benjamin Franklin Correct? 49
Investments in On-the-Job Training 51
General versus Firm-Specific Human Capital 54
Who Should Pay for Training? 56
Implications of On-the-Job Training 61
Rent Sharing and Compensation 63
Summary 66
Study Questions 67
References 68
Further Reading 68
Appendix (available online)

CHAPTER 4 MANAGING TURNOVER 69

Is Turnover Good or Bad? 69
Importance of Sorting 70
Technical Change 70
Organizational Change 71
Hierarchical Structure 71
Specific Human Capital 71
Retention Strategies 72
Reducing Costs of Losing Key Employees 73
Embracing Turnover 75
Bidding for Employees 76
Raiding Other Firms: Benefits and Pitfalls 76
Offer Matching 80
Layoffs and Buyouts 82
Who to Target for Layoffs 83
Buyouts 86
Summary 90
Study Questions 91
xii • Contents

References 91
Further Reading 92
Appendix (available online)

PART TWO ORGANIZATIONAL AND JOB DESIGN 93

CHAPTER 5 DECISION MAKING 95
The Organization of an Economy 95
Markets as Information Systems 96
Markets as Incentive Systems 98
Markets and Innovation 98
Benefits of Central Planning 98
The Market as Metaphor for Organizational Design 100
Benefits of Centralization 102
Economies of Scale or Public Goods 102
Better Use of Central Knowledge 103
Coordination 103
Control 104
Benefits of Decentralization 105
Specific versus General Knowledge 105
Other Benefits of Decentralization 107
Decision Management and Control 108
Decision Making as a Multistage Process 108
Creativity versus Control 110
Investing in Better-Quality Decision Making 118
Summary 121
Study Questions 123
References 123
Further Reading 124
Appendix (available online)

CHAPTER 6 ORGANIZATIONAL STRUCTURE 125

Types of Organizational Structures 126
Hierarchy 126
Functional Structure 128
Divisional Structure 129
Matrix or Project Structure 133
Network Structure 136
Which Structure Should a Firm Use? 139
Coordination 140
Two Types of Coordination Problems 140
Coordination Mechanisms 142
 Contents • xiii

Implementation 145
Span of Control and Number of Levels in a Hierarchy 145
Skills, Pay, and Structure 148
Evolution of a Firm’s Structure 149
Summary 150
Study Questions 152
References 153
Further Reading 154

CHAPTER 7 JOB DESIGN 155

Patterns of Job Design 155
Optimal Job Design: Skills, Tasks, and Decisions 159
Multiskilling and Multitasking 159
Decisions 163
Complementarity and Job Design 164
When to Use Different Job Designs 165
Taylorism 166
Factors Pushing Toward Taylorism or Continuous
Improvement 168
Intrinsic Motivation 171
Summary 173
Study Questions 175
References 176
Further Reading 177
Appendix (available online)

CHAPTER 8 ADVANCED JOB DESIGN 178

Teams 179
Group Decision Making 179
Free Rider Effects 179
When to Use Teams 180
Other Benefits of Team Production 181
Implementation of Teams 186
Team Composition 187
Effects of Information Technology 190
Effects on Organizational Structure 190
Effects on Job Design 193
High-Reliability Organizations 196
Summary 198
Study Questions 199
References 200
Further Reading 200
Appendix (available online)
xiv • Contents

PART THREE PAYING FOR PERFORMANCE 201

CHAPTER 9 PERFORMANCE EVALUATION 207
Purposes of Performance Evaluation 208
Ways to Evaluate Performance 208
Quantitative Performance Measurement 208
Risk Profile 209
Distortion 210
Manipulation 214
Match of the Performance Measure to Job Design 215
Subjective Evaluation 218
Why Use Subjective Evaluations? 219
Reduce Distortion and Manipulation 220
Practical Considerations 222
Summary 227
Study Questions 228
References 229
Further Reading 229

CHAPTER 10 REWARDING PERFORMANCE 230

How Strong Should Incentives Be? 233
Intuition 233
Imperfect Evaluations and Optimal Incentives 237
Summary: How Strong Should Incentives Be? 242
Paying for Performance: Common Examples 243
Rewards or Penalties? 243
Lump Sums, Demotions, or Promotions 246
Caps on Rewards 249
Applications 251
Profit Sharing and ESOPs 251
Organizational Form and Contracting 253
Motivating Creativity 254
Summary 255
Study Questions 256
References 257
Further Reading 257
Appendix (available online)

CHAPTER 11 CAREER-BASED INCENTIVES 258

Promotions and Incentives 261
Should Promotions Be Used as an Incentive System? 261
Promotion Rule: Tournament or Standard? 262
 Contents • xv

How Do Promotions Generate Incentives? 267

Advanced Issues 271
Evidence 275
Career Concerns 276
Seniority Pay and Incentives 276
Practical Considerations 278
Summary 279
Study Questions 281
References 282
Further Reading 282
Appendix (available online)

CHAPTER 12 OPTIONS AND EXECUTIVE PAY 284

Employee Stock Options 285
Stock Options–A Brief Overview 285
Should Firms Grant Employees Options? 286
Options as Incentive Pay 288
Executive Pay 293
What Is the Most Important Question? 293
Executive Pay for Performance 295
Other Incentives and Controls 297
Do Executive Incentives Matter? 299
Summary 302
Employee Stock Options 302
Executive Pay 303
Study Questions 303
References 304
Further Reading 304
Appendix (available online)

PART FOUR APPLICATIONS 307

CHAPTER 13 BENEFITS 309
Wages versus Benefits 309
Why Offer Benefits? 312
Cost Advantage 312
Value Advantage 313
Government Mandate 315
Implementation of Benefits 316
Improving Employee Sorting 316
Cafeteria Plans 317
Pensions 319
Paid Time Off 327
Summary 329
xvi • Contents

Study Questions 331

References 331
Further Reading 332

CHAPTER 14 ENTREPRENEURSHIP AND INTRAPRENEURSHIP 333

Entrepreneurship 334
The Choice to Become an Entrepreneur 335
Intrapreneurship 344
Internal Markets 345
Creativity versus Control 347
Recruiting 347
Motivating Creativity 348
Speed of Decision Making 350
Reducing Bureaucracy 350
Continuous Improvement 351
Summary 353
Study Questions 353
References 354
Further Reading 355
Appendix (available online)

CHAPTER 15 THE EMPLOYMENT RELATIONSHIP 356

Employment as an Economic Transaction 356
Perfect Competition 356
Imperfect Competition 357
Complex Contracting 358
Summary 361
Communication between Management and Workers 362
Communication from Management to Workers 362
Communication from Workers to Management 364
The Optimal Level of Worker Consultation 366
Improving Cooperation 370
From the Prisoner’s Dilemma to Employment 372
Reputation and the Employment Relationship 374
Investing in Reputation 375
Summary 381
Personnel Economics in Practice 381
Study Questions 383
References 383
Further Reading 384
Appendix (available online)
GLOSSARY 385
INDEX 393
 Lazear p01.tex V2 - September 15, 2014 5:48 P.M. Page 1

Part One
SORTING AND INVESTING
IN EMPLOYEES

T he textbook has three core sections, followed by a shorter section with appli-
cations and advanced summary discussions. In this first section, we take a simple view
of employees that is quite similar to that taken in much of biology: nature versus nur-
ture. In our context, employees bring to the workplace certain innate abilities, such as
to think quickly or creatively or to work with numbers. They also develop new or more
advanced skills through education, experience, and on-the-job training.
The topics of this section are how to sort employees by their innate or accumu-
lated skills, how to invest further in their skills, and how to manage their exit from the
organization, as a function of their talents and skills. One can think of a firm’s career
policies as a kind of pipeline, bringing employees in, developing and promoting them,
and eventually transitioning them out. That is the sequence of this section.
In the process of exploring these issues, several important economic concepts are
introduced: asymmetric information, investment, labor market constraints on firm poli-
cies, and different methods of contracting.
Asymmetric information refers to situations where two parties to an economic trans-
action (in our case, the firm and the employee) have different information that is relevant
to the transaction. Problems of asymmetric information are ubiquitous in economies
and organizations (e.g., the quality of a new hire or the effort that an employee expends
on the job). They also tend to lead to inefficiencies, because incorrect decisions are
made, because lack of information creates risk, or because one party exploits its infor-
mational advantage for personal gain at the expense of overall efficiency.
Asymmetric information arises in recruiting because the employee has more infor-
mation about suitability for a job than does the firm (the opposite case may also arise).
This presents a challenge for firms and employees during recruiting. We will see that
one way to deal with this is to use the economic principle of signaling, which encourages

1
 Lazear p01.tex V2 - September 15, 2014 5:48 P.M. Page 2

2 • Sorting and Investing in Employees

the employee to use his or her information in a constructive rather than strategic way.
The idea of signaling has applications in many areas of business, and we shall mention a
few. This is an example of how the tools used in this book have broad application outside
of employment.
The second economic tool used is the idea of optimal investment. Employees and
their employers can invest in their skills. In studying this issue, we use ideas that also
play a role in finance courses. We will also consider the constraints that labor markets
impose on human resource policies in firms—for example, whether a firm should invest
in employee skills.
Finally, we will see three approaches to thinking about economic transactions or
contracts. We start with the simplest—a spot market whereby the firm simply pays an
employee’s market price at each point in time. This is the standard view in introduc-
tory microeconomics classes. But in trying to improve recruiting, we will see the need
for more complex, multiperiod contracts between the firm and the employee. These con-
tracts will also be contingent, in this case on employee performance. Finally, in some cases
we will see that the contract between the firm and the employee involves implicit or infor-
mal elements, because it is not always possible to write complete formal contracts. This
gives us a useful framework for thinking about the overall employment relationship and
even issues such as corporate culture.
 Lazear c01.tex V2 - September 15, 2014 5:41 P.M. Page 3

1
SETTING HIRING
STANDARDS

When you’re around someone good, your own standards are raised.
—Ritchie Blackmore, 1973

I n this chapter our goal is twofold: to introduce the topic of recruitment and to
introduce the economic approach used in the textbook. Let’s ease into both by
considering an example.

AN EXAMPLE: HIRING RISKY WORKERS

New Hires as Options
Imagine that you are a partner in an investment bank in the City (financial district) in
London and are deciding between two candidates to fill a position as an associate (junior)
investment banker. Gupta has the standard background of most of the applicants that
you see, including a degree in economics, a few years of experience as a financial analyst,
an MBA with a focus in finance, and a summer internship at an investment bank. You
feel that his productivity is highly predictable, and that he can produce £200,000 of
value per year. Svensen, however, has a very unusual background compared to other
applicants. She has a strong track record and appears quite talented, but does not have
much experience related to investment banking. Thus, you feel that her success is much
less predictable. She may turn out to be a star, in which case she will produce £500,000
per year, but she may also turn out to be a disaster, actually losing £100,000 per year.
Suppose that each of these outcomes for Svensen is equally likely (50 percent odds).
Then expected (average) output from Svensen in any given year is exactly the same as the
output from Gupta:

Expected output from Svensen = ½ ⋅ £500,000 − ½ ⋅ £100,000 = £200,000.

3
 Lazear c01.tex V2 - September 15, 2014 5:41 P.M. Page 4

4 • Setting Hiring Standards

FIGURE 1.1
HIRING A RISKY OR PREDICTABLE WORKER
Net = £1 M

Gupta
Retain
Net = £4 M

Svensen Expected net = £1.9 M

Fire after 1st year
Net = –£200 K

If the cost (wages and benefits) of both employees is the same, which is the better
hire? The answer might seem counterintuitive, but often the firm should hire the riskier
worker.
Suppose that both Svensen and Gupta can be expected to work at your firm for
10 years. Suppose further that it takes one full year to determine whether Svensen is a
star. The salary is £100,000 a year, and for the moment let us assume that this will be
the salary for the foreseeable future.1 In that case, your firm earns a profit of £100,000
per year from Gupta, for a total value of £1 million over 10 years. The top branch of
Figure 1.1 shows this choice.
Alternatively, you can hire Svensen. With probability equal to ½ that Svensen is a
star, producing £500,000 per year, your firm earns profits of £400,000 from employing
her for 10 years, netting £4 million. With probability equal to ½ that Svensen loses
money for your firm, you can terminate her at the end of the year, so the total loss
is £200,000, including her salary. These two outcomes are the remaining branches in
Figure 1.1. Thus, the expected profit from hiring Svensen is:

Expected profit from Svensen = ½ ⋅ £4,000,000 − ½ ⋅ £200,000 = £1,900,000.

Svensen is therefore almost twice as profitable to hire as Gupta! Even though the
two candidates have the same expected value, Svensen is worth much more. The firm
can keep her if she turns out to be a good employee and dismiss her if she turns out to
be a bad one. The firm has the option of firing poor workers and keeping the good ones.
This is the argument that is sometimes made for hiring workers with potential over
conservative, proven ones. With the more proven worker, the firm gets a solid per-
former. With the risky worker, the firm may find that it made a mistake, but this can be
remedied relatively quickly. It may also find that it has a diamond in the rough. In such
a situation, it may make sense for the firm to lower (or broaden) recruiting standards and
consider some less conventional candidates.

1 In this example, we ignore issues of present value by assuming that the interest rate is zero to keep things

simple. When we do this in examples in this book, it is always the case that the intuition that is developed would
be identical if we used discounted present values. Similarly, all examples in this text use inflation-adjusted
figures, since inflation does not affect the conclusions.
 Lazear c01.tex V2 - September 15, 2014 5:41 P.M. Page 5

An Example: Hiring Risky Workers • 5

This simple example can be quite surprising to many students, since it seems to
contradict the intuition that, if expected values are equal, risk is always a bad thing.
However, risk is not a bad thing in the case of real options such as hiring employees.
It is a nice example because it illustrates how formal economic analysis can lead to better
decisions. Our intuition tends to be the opposite of the correct answer in this case.

Analysis
The structure developed here suggests several other factors that are important in decid-
ing whether to take a chance on a risky hire.

Downside Risk
The value of taking a chance on a risky candidate can be so large that it is often the better
strategy even if the safe worker has a higher expected value per year. Even if Svensen
might have been a total disaster, destroying £1,000,000 of value with a probability of
½, it would have paid to take a chance on her. However, the more the potential there is
for an employee to destroy value, the less likely is it to be optimal to take a chance on a
risky worker.

Upside Potential
Svensen was potentially valuable because she could generate high profits if she turned
out to be a star. The greater those profits, the greater the option value from a risky hire.
Thus, in jobs where small increases in talent lead to large increases in value creation,
hiring risky candidates will be even more valuable (as long as there is no increased down-
side risk as well). Think of an entrepreneur assembling a new management team. There
is little to lose, but there may well be much to gain. In such a case, it will make more
sense to take a chance on a risky candidate.
Our analysis applies better to job applicants with more uncertainty about their
potential performance. Little is known about a recent graduate with a short resume,
but someone who has 20 years of experience may have more predictable performance.
Firms might take more chances on new labor market entrants. Similarly, a job applicant
who is changing occupations may be worth considering.
Finally, firms should consider the upside potential of the specific candidate. An
applicant with an unusual background, but with evidence of adaptability to different sit-
uations, creativity, and strong abilities, may be a good person to consider for a risky hire.

Termination Costs
The more costly it is to fire a worker, the more costly is a risky candidate. Nevertheless,
it may still pay to hire the risky worker and terminate in the case that the worker does not
turn out to be a good fit, even if there are high termination costs. In most countries, firms
are prevented from terminating workers at will. Legal or social restrictions can make the
option of firing a worker after one year costly. Consider the extreme case where hiring
is for life. If the firm is risk neutral (is willing to accept any risks, as long as expected
values are equal), as long as Svensen’s expected productivity is equal to or greater than
Gupta’s, it will be a profitable bet to hire Svensen. More generally, the benefits from the
 Lazear c01.tex V2 - September 15, 2014 5:41 P.M. Page 6

6 • Setting Hiring Standards

case where Svensen turns out to be a star are so high that it would often be worth hiring
Svensen even if firing costs were high.

Risk Aversion
If the firm is risk averse, it may still be optimal to hire Svensen. Svensen will now be
costly to the firm in a different way, because she is risky. However, the differences in
expected productivity are quite large and should more than compensate for typical levels
of risk aversion.

AN IMPLEMENTATION PROBLEM

The issue of risk aversion raises an interesting point. When managers and recruiting spe-
cialists are taught this example, their typical response is to reject its conclusions, saying that
they would be more conservative in hiring. Why is this the case? Is the theory wrong or
are the managers wrong? Quite possibly, neither. Rather, the analysis assumes that the firm
is relatively risk neutral. However, decision makers are typically risk averse, and this will
affect their decisions. For example, they might expect that they will be criticized or receive
a poor evaluation if they hire a bad candidate for the job. The more risk averse they are,
the more they will make decisions to avoid such an outcome.

To the extent that a manager’s risk aversion is different from that of the employer, this
is an incentive problem or a conflict of interest. This is a topic that we will address in
Chapters 9–12. In the meantime, if those who make hiring decisions are too conservative,
a possible solution to the problem would be to try to avoid punishing them when they
make mistakes in hiring. Another would be to appoint less conservative managers to
handle recruitment.

Length of Evaluation
The time that it takes to evaluate whether Svensen is a star or a disaster affects the value
of hiring a risky candidate. If the evaluation takes 10 years, in our example there is no
value to hiring Svensen. If the evaluation takes only one year, the firm can limit its cost
of a disastrous hire to only one year of pay and poor productivity.

Length of Employment
The value of hiring Svensen would have been even greater if the firm could have
employed Svensen for more than 10 years. For example, if Svensen was 30 years
old when hired and stayed at your company (for the same salary) until retirement,
the profit from hiring Svensen would be £14 million if she turned out to be a star
(£400,000 per year × 35 years). This suggests that the value of a risky hire will usually
be larger the younger the new hire and the lower the turnover in the company (so that
employees tend to stay with the firm longer).
 Lazear c01.tex V2 - September 15, 2014 5:41 P.M. Page 7

An Example: Hiring Risky Workers • 7

A Counterargument
Our conclusions are only as good as the assumptions behind them. An important
element of the economic approach to personnel is careful consideration of when the
assumptions do or do not apply and of what the effect would be of changing key assump-
tions. In the model above, the conclusion rested primarily on one key assumption: that
we can profit when we find a star employee. Let us reconsider this assumption.
If Svensen turns out to be a star, is it safe to assume that we can continue to pay her
£100,000? Might she try to bargain for a better salary? Might other employers try to hire
her away from us? What would happen to our argument if these considerations applied?
These questions bring up a crucial consideration throughout this book: The firm
always has to match an employee’s outside market value. More precisely, the firm offers
a job package with many characteristics, including the type of work, extent of effort
required to do the work, degree of training, pay and other benefits, possibility for further
advancement, and job security. The employee will consider all elements of the package
in valuing the job and compare it to alternative jobs offered by competing employers.
Firms must make sure that their job offers match those of competing employers in terms
of pay and other characteristics.
For now, let us keep things simple and focus on pay and productivity. Suppose
that other employers can observe how productive Svensen is. Moreover, assume that
Svensen’s productivity as a star or a disaster would be the same at any other investment
bank. These are reasonable starting assumptions for investment banking; the work is
often quite public and is similar at most firms.
When this is the case, if Svensen is revealed to be a star, other investment banks will
be willing to pay her more than £100,000 per year. In fact, they should be willing to pay
as much as £500,000 per year, since that is her productivity. Labor market competition
will tend to drive competing employers toward zero profit from hiring Svensen.
If Svensen is a disaster, no investment bank should be willing to hire her. She is
likely to find better employment in a different industry where her productivity is not
negative.
What is the benefit to your firm of hiring Svensen in this case? There is none. In
order to retain her if she is a star, you have to compete with other firms and would end
up paying about £500,000 per year. In other words, our conclusion that it would pay to
hire a risky candidate rested on our ability to earn a profit from Svensen if she turned
out to be a star.
How can we benefit from Svensen? There are two possibilities.

Asymmetric Information
Competing firms may not figure out Svensen’s productivity, at least not immediately.
Even though investment banking is often quite public work, some of it is not, and the
work is also generally done in teams. Outside firms may find it difficult to estimate
Svensen’s individual contribution because of these factors. This implies that in indus-
tries where productivity is less individualistic and less public, hiring a risky candidate
is more likely to be worthwhile. Furthermore, to the extent that your firm can delay
Another Random Scribd Document
with Unrelated Content
 CHAPTER VIII
THE LAND OF THE MANGROVE
SWAMPS
It was a long but a most interesting journey that the Doctor took
from Fantippo to Lake Junganyika. It turned out that the turtle's
home lay many miles inland in the heart of one of the wildest, most
jungly parts of Africa.
The Doctor decided to leave Gub-Gub home this time and he took
with him only Jip, Dab-Dab, Too-Too and Cheapside—who said he
wanted a holiday and that his sparrow friends could now quite well
carry on the city deliveries in his absence.
The great water snake began by taking the Doctor's party down the
coast south for some forty or fifty miles. There they left the sea,
entered the mouth of a river and started to journey inland. The
canoe (with the snake swimming alongside it) was quite the best
thing for this kind of travel so long as the river had water in it. But
presently, as they went up it, the stream grew narrower and
narrower. Till at last, like many rivers in tropical countries, it was
nothing more than the dry bed of a brook, or a chain of small pools
with long sand bars between.
Overhead the thick jungle arched and hung like a tunnel of green.
This was a good thing by day-time, as it kept the sun off better than
a parasol. And in the dry stretches of river bed, where the Doctor
had to carry or drag the canoe on home-made runners, the work
was hard and shade something to be grateful for.
At the end of the first day John Dolittle wanted to leave the canoe in
a safe place and finish the trip on foot. But the snake said they
would need it further on, where there was more water and many
swamps to cross.
As they went forward the jungle around them seemed to grow
thicker and thicker all the time. But there was always this clear alley-
way along the river bed. And though the stream's course did much
winding and twisting, the going was good.
The Doctor saw a great deal of new country, trees he had never met
before, gay-colored orchids, butterflies, ferns, birds and rare
monkeys. So his notebook was kept busy all the time with sketching
and jotting and adding to his already great knowledge of natural
history.
On the third day of travel this river bed led them into an entirely new
and different kind of country. If you have never been in a mangrove
swamp, it is difficult to imagine what it looks like. It was mournful
scenery. Flat bog land, full of pools and streamlets, dotted with tufts
of grass and weed, tangled with gnarled roots and brambling
bushes, spread out for miles and miles in every direction. It
reminded the Doctor of some huge shrubbery that had been flooded
by heavy rains. No large trees were here, such as they had seen in
the jungle lower down. Seven or eight feet above their heads was as
high as the mangroves grew and from their thin boughs long
streamers of moss hung like gray, fluttering rags.
The life, too, about them was quite different. The gayly colored birds
of the true forest did not care for this damp country of half water
and half land. Instead, all manner of swamp birds—big-billed and
long-necked, for the most part—peered at them from the sprawling
saplings. Many kinds of herons, egrets, ibises, grebes, bitterns—even
stately anhingas, who can fly beneath the water—were wading in
the swamps or nesting on the little tufty islands. In and out of the
holes about the gnarled roots strange and wondrous water creatures
—things half fish and half lizard—scuttled and quarreled with brightly
colored crabs.
For many folks it would have seemed a creepy, nightmary sort of
country, this land of the mangrove swamps. But to the Doctor, for
whom any kind of animal life was always companionable and good
intentioned, it was a most delightful new field of exploration.
They were glad now that the snake had not allowed them to leave
the canoe behind. For here, where every step you took you were
liable to sink down in the mud up to your waist, Jip and the Doctor
would have had hard work to get along at all without it. And, even
with it, the going was slow and hard enough. The mangroves spread
out long, twisting, crossing arms in every direction to bar your
passage—as though they were determined to guard the secrets of
this silent, gloomy land where men could not make a home and
seldom ever came.
Indeed, if it had not been for the giant water snake, to whom
mangrove swamps were the easiest kind of traveling, they would
never have been able to make their way forward. But their guide
went on ahead of them for hundreds of yards to lead the way
through the best openings and to find the passages where the water
was deep enough to float a canoe. And, although his head was out
of sight most of the time in the tangled distance, he kept, in the
worst stretches, a firm hold on the canoe by taking a turn about the
bowpost with his tail. And whenever they were stuck in the mud he
would contract that long, muscular body of his with a jerk and yank
the canoe forward as though it had been no more than a can tied on
the end of a string.
Dab-Dab, Too-Too and Cheapside did not, of course, bother to sit in
the canoe. They found flying from tree to tree a much easier way to
travel. But in one of these jerky pulls which the snake gave on his
living towline, the Doctor and Jip were left sitting in the mud as the
canoe was actually yanked from under them. This so much amused
the vulgar Cheapside, who was perched in a mangrove tree above
their heads, that he suddenly broke the solemn silence of the swamp
by bursting into noisy laughter.
 "The canoe was yanked from under them"

"Lor' bless us, Doctor, but you do get yourself into some comical
situations! Who would think to see John Dolittle, M.D., heminent
physician of Puddleby-on-the-Marsh, bein' pulled through a mud
swamp in darkest Africa by a couple of 'undred yards of fat worm!
You've no idea how funny you look!"
"Oh, close your silly face!" growled Jip, black mud from head to foot,
scrambling back into the canoe. "It's easy for you—you can fly
through the mess."
"It 'ud make a nice football ground, this," murmured Cheapside. "I'm
surprised the Hafricans 'aven't took to it. I didn't know there was this
much mud anywhere—outside of 'Amstead 'Eath after a wet Bank
'Oliday. I wonder when we're going to get there. Seems to me we're
comin' to the end of the world—or the middle of it. 'Aven't seen a
'uman face since we left the shore. 'E's an exclusive kind of gent, our
Mr. Turtle, ain't 'e? Meself, I wouldn't be surprised if we ran into old
Noah, sitting on the wreck of the Hark, any minute.... 'Elp the Doctor
up, Jip. Look, 'e's got his chin caught under a root."
The snake, hearing Cheapside's chatter, thought something must be
wrong. He turned his head-end around and came back to see what
the matter was. Then a short halt was made in the journey while the
Doctor and Jip cleaned themselves up, and the precious notebooks,
which had also been jerked out into the mud, were rescued and
stowed in a safe place.
"Do no people at all live in these parts?" the Doctor asked the snake.
"None whatever," said the guide. "We left the lands where men dwell
behind us long ago. Nobody can live in these bogs but swamp birds,
marsh creatures and water snakes."
"How much further have we got to go?" asked the Doctor, rinsing
the mud off his hat in a pool.
"About one more day's journey," said the snake. "A wide belt of
these swamps surrounds the Secret Lake of Junganyika on all sides.
The going will become freer as we approach the open water of the
lake."
"We are really on the shores of it already, then?"
"Yes," said the serpent. "But, properly speaking, the Secret Lake
cannot be said to have shores at all—or, certainly, as you see, no
shore where a man can stand."
"Why do you call it the Secret Lake?" asked the Doctor.
"Because it has never been visited by man since the Flood," said the
giant reptile. "You will be the first to see it. We who live in it boast
that we bathe daily in the original water of the Flood. For before the
Forty Days' Rain came it was not there, they say. But when the Flood
passed away this part of the world never dried up. And so it has
remained, guarded by these wide mangrove swamps, ever since."
"What was here before the Flood then?" asked the Doctor.
"They say rolling, fertile country, waving corn and sunny hilltops,"
the snake replied. "That is what I have heard. I was not there to
see. Mudface, the turtle, will tell you all about it."
"How wonderful!" exclaimed the Doctor. "Let us push on. I am most
anxious to see him—and the Secret Lake."
 CHAPTER IX
THE SECRET LAKE
During the course of the next day's travel the country became, as
the snake had foretold, freer and more open. Little by little the
islands grew fewer and the mangroves not so tangly. In the dreary
views there was less land and more water. The going was much
easier now. For miles at a stretch the Doctor could paddle, without
the help of his guide, in water that seemed to be quite deep. It was
indeed a change to be able to look up and see a clear sky overhead
once in a while, instead of that everlasting network of swamp trees.
Across the heavens the travelers now occasionally saw flights of wild
ducks and geese, winging their way eastward.
"That's a sign we're near open water," said Dab-Dab.
"Yes," the snake agreed. "They're going to Junganyika. It is the
feeding ground of great flocks of wild geese."
It was about five o'clock in the evening when they came to the end
of the little islands and mud banks. And as the canoe's nose glided
easily forward into entirely open water they suddenly found
themselves looking across a great inland sea.
The Doctor was tremendously impressed by his first sight of the
Secret Lake. If the landscape of the swamp country had been
mournful this was even more so. No eye could see across it. The
edge of it was like the ocean's—just a line where the heavens and
the water meet. Ahead to the eastward—the darkest part of the
evening sky—even this line barely showed, for now the murky
waters and the frowning night blurred together in an inky mass. To
the right and left the Doctor could see the fringe of the swamp trees
running around the lake, disappearing in the distance North and
South.
Out in the open great banks of gray mist rolled and joined and
separated as the wailing wind pushed them fretfully hither and
thither over the face of the waters.
"My word!" the Doctor murmured in a quiet voice. "Here one could
almost believe that the Flood was not over yet!"
"Jolly place, ain't it?" came Cheapside's cheeky voice from the stern
of the canoe. "Give me London any day—in the worst fog ever. This
is a bloomin' eels' country. Look at them mist shadows skatin' round
the lake. Might be old Noah and 'is family, playin' 'Ring-a-ring-a-rosy'
in their night-shirts, they're that lifelike."
"The mists are always there," said the snake—"always have been. In
them the first rainbow shone."
"Well," said the sparrow, "I'd sell the whole place cheap if it was
mine—mists and all. 'Ow many 'undred miles of this bonny blue
ocean 'ave we got to cross before we reach our Mr. Mudface?"
"Not very many," said the snake. "He lives on the edge of the lake a
few miles to the North. Let us hurry and try to reach his home
before darkness falls."
Once more, with the guide in front, but this time at a much better
pace, the party set off.
As the light grew dimmer the calls of several night birds sounded
from the mangroves on the left. Too-Too told the Doctor that many
of these were owls, but of kinds that he had never seen or met with
before.
"Yes," said the Doctor. "I imagine there are lots of different kinds of
birds and beasts in these parts that can be found nowhere else in
the world."
At last, while it was still just light enough to see, the snake swung
into the left and once more entered the outskirts of the mangrove
swamps. Following him with difficulty in the fading light, the Doctor
was led into a deep glady cove. At the end of this the nose of the
canoe suddenly bumped into something hard. The Doctor was about
to lean out to see what it was when a deep, deep bass voice spoke
out of the gloom quite close to him.
"Welcome, John Dolittle. Welcome to Lake Junganyika."
Then looking up, the Doctor saw on a mound-like island the shape of
an enormous turtle—fully twelve feet across the shell—standing
outlined against the blue-black sky.

"The Doctor saw the shape of an enormous turtle"

The long journey was over at last.
Doctor Dolittle did not at any time believe in traveling with very
much baggage. And all that he had brought with him on this journey
was a few things rolled up in a blanket—and, of course, the little
black medicine-bag. Among those things, luckily, however, were a
couple of candles. And if it had not been for them he would have
had hard work to land safely from the canoe.
Getting them lighted in the wind that swept across the lake was no
easy matter. But to protect their flame Too-Too wove a couple of
little lanterns out of thin leaves, through which the light shone dimly
green but bright enough to see your way by.
To his surprise, the Doctor found that the mound, or island, on
which the turtle lived was not made of mud, though muddy
footprints could be seen all over it. It was made of stone—of stones
cut square with a chisel.
While the Doctor was examining them with great curiosity the turtle
said:
"They are the ruins of a city. I used to be content to live and sleep in
the mud. But since my gout has been so bad I thought I ought to
make myself something solid and dry to rest on. Those stones are
pieces of a king's house."
"Pieces of a house—of a city!" the Doctor exclaimed, peering into
the wet and desolate darkness that surrounded the little island. "But
where did they come from?"
"From the bottom of the lake," said the turtle. "Out there," Mudface
nodded toward the gloomy wide-stretching waters, "there stood,
thousands of years ago, the beautiful city of Shalba. Don't I know,
when for long enough I lived in it? Once it was the greatest and
fairest city ever raised by men and King Mashtu of Shalba the
proudest monarch in the world. Now I, Mudface the turtle, make a
nest in the swamp out of the ruins of his palace. Ha! Ha!"
"You sound bitter," said the Doctor. "Did King Mashtu do you any
harm?"
"I should say he did," growled Mudface. "But that belongs to the
story of the Flood. You have come far. You must be weary and in
need of food."
"Well," said the Doctor, "I am most anxious to hear the story. Does it
take long to tell?"
"About three weeks would be my guess," whispered Cheapside.
"Turtles do everything slow. Something tells me that story is the
longest story in the world, Doctor. Let's get a nap and a bite to eat
first. We can hear it just as well to-morrow."
So, in spite of John Dolittle's impatience, the story was put off till the
following day. For the evening meal Dab-Dab managed to scout
around and gather together quite a nice mess of fresh-water
shellfish and Too-Too collected some marsh berries that did very well
for dessert.
Then came the problem of how to sleep. This was not so easy,
because, although the foundations of the turtle's mound were of
stone, there was hardly a dry spot on the island left where you could
lie down. The Doctor tried the canoe. But it was sort of cramped and
uncomfortable for sleeping, and now even there, too, the mud had
been carried by Dab-Dab's feet and his own. In this country the
great problem was getting away from the mud.
"When Noah's family first came out of the Ark," said the turtle, "they
slept in little beds which they strung up between the stumps of the
drowned trees."
"Ah, hammocks!" cried the Doctor. "Of course—the very thing!"
Then, with Jip's and Dab-Dab's help, he constructed a very
comfortable basket-work hammock out of willow wands and
fastened it between two larger mangroves. Into this he climbed and
drew the blanket over him. Although the trees leaned down toward
the water with his weight, they were quite strong and their
bendiness acted like good bed springs.

"The trees bent down with his weight"

The moon had now risen and the weird scenery of Junganyika was
all green lights and blue shadows. As the Doctor snuffed out his
candles and Jip curled himself up at his feet the turtle suddenly
started humming a tune in his deep bass voice, waving his long neck
from side to side in the moonlight.
"What is that tune you are humming?" asked the Doctor.
"That's the 'Elephants' March,'" said the turtle. "They always played
it at the Royal Circus of Shalba for the elephants' procession."
"Let's 'ope it 'asn't many verses," grumbled Cheapside, sleepily
putting his head under his wing.
The sun had not yet risen on the gloomy waters of Lake Junganyika
before Jip felt the Doctor stirring in his hammock, preparing to get
up.
Presently Dab-Dab could be heard messing about in the mud below,
bravely trying to get breakfast ready under difficult conditions.
Next Cheapside, grumbling in a sleepy chirp, brought his head out
from under his wing, gave the muddy scenery one look and popped
it back again.
But it was of little use to try to get more sleep now. The camp was
astir. John Dolittle, bent on the one idea of hearing that story, had
already swung himself out of his hammock and was now washing his
face noisily in the lake. Cheapside shook his feathers, swore a few
words in Cockney and flew off his tree down to the Doctor's side.
 "The Doctor was washing his face in the lake"

"Look 'ere, Doctor," he whispered, "this ain't an 'olesome place to

stay at all. I'm all full of cramp from the damp night air. You'd get
webfooted if you loitered in this country long. Listen, you want to be
careful about gettin' old Mudface started on his yarn spinning. D'yer
know what 'e reminds me of? Them old Crimea War veterans. Once
they begin telling their reminiscences there's no stoppin' 'em. 'E
looks like one, too, with that long, scrawny neck of 'is. Tell 'im to
make it short and sweet—just to give us the outline of his troubles,
like, see? The sooner we can shake the mud of this place off our
feet and make tracks for Fantippo the better it'll be for all of us."
Well, when breakfast had been disposed of the Doctor sharpened his
pencil, got out a notebook and, telling Too-Too to listen carefully, in
case he should miss anything, he asked the turtle to begin the story
of the Flood.
Cheapside had been right. Although it did not take a fortnight to tell
it did take a very full day. Slowly and evenly the sun rose out of the
East, passed across the heavens and sank down into the West. And
still Mudface went murmuring on, telling of all the wonders he had
seen in days long ago, while the Doctor's pencil wiggled untiringly
over the pages of his notebook. The only interruptions were when
the turtle paused to lean down and moisten his long throat with the
muddy water of the lake, or when the Doctor stopped him to ask a
question on the natural history of antediluvian times.
Dab-Dab prepared lunch and supper and served them as silently as
she could, so as not to interrupt; but for the Doctor they were very
scrappy meals. On into the night the story went. And now John
Dolittle wrote by candle-light, while all his pets, with the exception of
Too-Too, were already nodding or dozing.
At last, about half past ten—to Cheapside's great relief—the turtle
pronounced the final words.
"And that, John Dolittle, is the end of the story of the Flood by one
who saw it with his own eyes."
For some time after the turtle finished no one spoke. Even the
irreverent Cheapside was silent. Little bits of stars, dimmed by the
light of a half-full moon, twinkled like tiny eyes in the dim blue dome
that arched across the lake. Away off somewhere among the tangled
mangroves an owl hooted from the swamp and Too-Too turned his
head quickly to listen. Dab-Dab, the economical housekeeper, seeing
the Doctor close his notebook and put away his pencil, blew out the
candle.
 "Dab-Dab, the economical housekeeper, blew out the candle"

At last the Doctor spoke:

"Mudface, I don't know when, in all my life I have listened to a story
that interested me so much. I—I'm glad I came."
"I too am glad, John Dolittle. You are the only one in the world now
who understands the speech of animals. And if you had not come
my story of the Flood could not have been told. I'm getting very old
and do not ever move far away from Junganyika."
"Would it be too much to ask you?" said the Doctor, "to get me some
souvenir from the city below the lake?"
"Not at all," said the turtle. "I'll go down and try to get you
something right away."
Slowly and smoothly, like some unbelievable monster of former days,
the turtle moved his great bulk across his little island and slid himself
into the lake without splashing or disturbance of any kind. Only a
gentle swirling in the water showed where he had disappeared.
In silence they all waited—the animals now, for the moment,
reawakened and full of interest. The Doctor had visions of his
enormous friend moving through the slime of centuries at the
bottom of the lake, hunting for some souvenir of the great
civilization that passed away with the Flood. He hoped that he would
bring a book or something with writing on it.
Instead, when at last he reappeared wet and shining in the
moonlight, he had a carved stone window-sill on his back which
must have weighed over a ton.
"Lor' bless us!" muttered Cheapside. "What a wonderful piano-mover
'e would make to be sure! Great Carter Patterson! Does 'e think the
Doctor's goin' to 'ang that on 'is watch-chain?"
"It was the lightest thing I could find," said the turtle, rolling it off
his back with a thud that shook the island. "I had hoped I could get
a vase or a plate or something you could carry. But all the smaller
objects are now covered in fathoms of mud. This I broke off from
the second story of the palace—from the queen's bedroom window.
I thought perhaps you'd like to see it anyway, even if it was too
much for you to carry home. It's beautifully carved. Wait till I wash
some of the mud off it."
The candles were lighted again and after the carvings had been
cleaned the Doctor examined them with great care and even made
sketches of some of them in his notebook.
By the time the Doctor had done, all his party, excepting Too-Too,
had fallen asleep. It was only when he heard Jip suddenly snore
from the hammock that he realized how late it was. As he blew out
the candles again he found that it was very dark, for now the moon
had set. He climbed into bed and drew the blankets over him.
 CHAPTER X
THE POSTMASTER GENERAL'S LAST
ORDER
When Dab-Dab roused the party next morning the sun was shining
through the mist upon the lake doing its best to brighten up the
desolate scenery around them.
Poor Mudface awoke with an acute attack of gout. He had not been
bothered by this ailment since the Doctor's arrival. But now he could
scarcely move at all without great pain. And Dab-Dab brought his
breakfast to him where he lay.
John Dolittle was inclined to blame himself for having asked him to
go hunting in the lake for souvenirs the night before.
"I'm afraid that was what brought on the attack," said the Doctor,
getting out his little black bag from the canoe and mixing some
medicines. "But you know you really ought to move out of this damp
country to some drier climate. I am aware that turtles can stand an
awful lot of wet. But at your age one must be careful, you know."
 "Mixing the turtle's medicine"

"There isn't any other place I like as well," said Mudface. "It's so
hard to find a country where you're not disturbed these days."
"Here, drink this," the Doctor ordered, handing him a tea-cup full of
some brown mixture. "I think you will find that that will soon relieve
the stiffness in your front legs."
The turtle drank it down. And in a minute or two he said he felt
much better and could now move his legs freely without pain.
"It's a wonderful medicine, that," said he. "You are surely a great
Doctor. Have you got any more of it?"
"I will make up several bottles of the mixture and leave them with
you before I go," said John Dolittle. "But you really ought to get on
high ground somewhere. This muddy little hummock is no place for
you to live. Isn't there a regular island in the lake, where you could
make your home—if you're determined not to leave the Junganyika
country?"
"Not one," said the turtle. "It's all like this, just miles and miles of
mud and water. I used to like it—in fact I do still. I wouldn't wish for
anything better if it weren't for this wretched gout of mine."
"Well," said the Doctor, "if you haven't got an island we must make
one for you."
"Make one!" cried the turtle. "How would you go about it?"
"I'll show you very shortly," said John Dolittle. And he called
Cheapside to him.
"Will you please fly down to Fantippo," he said to the City Manager,
"and give this message to Speedy-the-Skimmer. And ask him to send
it out to all the postmasters of the branch offices: The Swallow Mail
is very shortly to be closed—at all events for a considerable time. I
must now be returning to Puddleby and it will be impossible for me
to continue the service in its present form after I have left No-Man's-
Land. I wish to convey my thanks to all the birds, postmasters,
clerks and letter-carriers who have so generously helped me in this
work. The last favor which I am going to ask of them is a large one;
and I hope they will give me their united support in it. I want them
to build me an island in the middle of Lake Junganyika. It is for
Mudface the turtle, the oldest animal living, who in days gone by did
a very great deal for man and beast—for the whole world in fact—
when the earth was passing through the darkest chapters in all its
history. Tell Speedy to send word to all bird leaders throughout the
world. Tell him I want as many birds as possible right away to build
a healthy home where this brave turtle may end his long life in
peace. It is the last thing I ask of the post office staff and I hope
they will do their best for me."
Cheapside said that the message was so long he was afraid he
would never be able to remember it by heart. So John Dolittle told
him to take it down in bird scribble and he dictated it to him all over
again.
That letter, the last circular order issued by the great Postmaster
General to the staff of the Swallow Mail, was treasured by Cheapside
for many years. He hid it under his untidy nest in St. Edmund's left
ear on the south side of the chancel of St. Paul's Cathedral. He
always hoped that the pigeons who lived in the front porch of the
British Museum would some day get it into the Museum for him. But
one gusty morning, when men were cleaning the outside of the
cathedral, it got blown out of St. Edmund's ear and, before
Cheapside could overtake it, it sailed over the housetops into the
river and sank.
The sparrow got back to Junganyika late that afternoon. He reported
that Speedy had immediately, on receiving the Doctor's message,
forwarded it to the postmasters of the branch offices with orders to
pass it on to all the bird-leaders everywhere. It was expected that
the first birds would begin to arrive here early the following morning.
It was Speedy himself who woke the Doctor at dawn the next day.
And while breakfast was being eaten he explained to John Dolittle
the arrangements that had been made.
The work, the Skimmer calculated, would take three days. All birds
had been ordered to pick up a stone or a pebble or a pinch of sand
from the seashore on their way and bring it with them. The larger
birds (who would carry stones) were to come first, then the middle-
sized birds and then the little ones with sand.
Soon, when the sky over the lake was beginning to fill up with
circling ospreys, herons and albatrosses, Speedy left the Doctor and
flew off to join them. There, taking up a position in the sky right
over the centre of the lake, he hovered motionless, as a marker for
the stone-droppers. Then the work began.
All day long a never-ending stream of big birds, a dozen abreast,
flew up from the sea and headed across Lake Junganyika. The line
was like a solid black ribbon, the birds, dense, packed and close,
beak to tail. And as each dozen reached the spot where Speedy
hovered, twelve stones dropped into the water. The procession was
so continuous and unbroken that it looked as though the sky were
raining stones. And the constant roar of them splashing into the
water out of the heavens could be heard a mile off.

"A never-ending stream of big birds"

The lake in the centre was quite deep. And of course tons and tons
of stone would have to be dropped before the new island would
begin to show above the water's surface. This gathering of birds was
greater even than the one the Doctor had addressed in the hollow of
No-Man's-Land. It was the biggest gathering of birds that had ever
been seen. For now not only the leaders came but thousands and
millions of every species. John Dolittle got tremendously excited and
jumping into his canoe he started to paddle out nearer to the work.
But Speedy grew impatient that the top of the stone-pile was not yet
showing above the water; and he gave the order to double up the
line—and then double again, as still more birds came to help from
different parts of the world. And soon, with a thousand stones falling
every fraction of a second, the lake got so rough that the Doctor had
to put back for the turtle's hummock lest his canoe capsize.
All that day, all that night and half the next day, this continued. At
last about noon on the morrow the sound of the falling stones began
to change. The great mound of seething white water, like a fountain
in the middle of the lake, disappeared; and in its place a black spot
showed. The noise of splashing changed to the noise of stone
rattling on stone. The top of the island had begun to show.
"It's like the mountains peeping out after the Flood," Mudface
muttered to the Doctor.
Then Speedy gave the order for the middle-sized birds to join in;
and soon the note of the noise changed again—shriller—as tons and
tons of pebbles and gravel began to join the downpour.
Another night and another day went by, and at dawn the gallant
Skimmer came down to rest his weary wings; for the workers did not
need a marker any longer—now that a good-sized island stood out
on the bosom of the lake for the birds to drop their burdens on.
Bigger and bigger grew the home-made land and soon Mudface's
new estate was acres wide. Still another order from Speedy; and
presently the rattling noise changed to a gentle hiss. The sky now
was simply black with birds; the pebble-shower had ceased; it was
raining sand. Last of all, the birds brought seeds: grass seeds, the
seeds of flowers, acorns and the kernels of palms. The turtle's new
home was to be provided with turf, with wild gardens, with shady
avenues to keep off the African sun.
When Speedy came to the hummock and said, "Doctor, it is
finished," Mudface gazed thoughtfully out into the lake and
murmured:
"Now proud Shalba is buried indeed: she has an island for a
tombstone! It's a grand home you have given me, John Dolittle.—
Alas, poor Shalba!—Mashtu the king passes. But Mudface the turtle
—lives on!"
 CHAPTER XI
GOOD-BYE TO FANTIPPO
Mudface's landing on his new home was quite an occasion. The
Doctor paddled out alongside of him till they reached the island.
Until he set foot on it, John Dolittle himself had not realized what a
large piece of ground it was. It was more than a quarter of a mile
across. Round in shape, it rose gently from the shores to the flat
centre, which was a good hundred feet above the level of the lake.
Mudface was tremendously pleased with it; climbing laboriously to
the central plateau—from where you could see great distances over
the flat country around—he said he was sure his health would
quickly improve in this drier air.
Dab-Dab prepared a meal—the best she could in the circumstances
—to celebrate what she called the turtle's house-warming. And
everyone sat down to it; and there was much gayety and the Doctor
was asked to make a speech in honor of the occasion.
 "Dab-Dab prepared a meal"

Cheapside was dreadfully afraid that Mudface would get up to make

a speech in reply and that it would last into the following day. But to
the sparrow's relief the Doctor, immediately he had finished, set
about preparations for his departure.
He made up the six bottles of gout mixture and presented them to
Mudface with instructions in how it should be taken. He told him that
although he was closing up the post office for regular service it
would always be possible to get word to Puddleby. He would ask
several birds of passage to stop here occasionally; and if the gout
got any worse he wanted Mudface to let him know by letter.
The old turtle thanked him over and over again and the parting was
a very affecting one. When at last the goodbyes were all said, they
got into the canoe and set out on the return journey.
Reaching the mouth of the river at the southern end of the lake they
paused a moment before entering the mangrove swamps and looked
back. And there in the distance they could just see the shape of the
old turtle standing on his new island, watching them. They waved to
him and pushed on.
"He looks just the same as we saw him the night we arrived," said
Dab-Dab—"you remember? Like a statue on a pedestal against the
sky."
"Poor old fellow!" murmured the Doctor. "I do hope he will be all
right now.... What a Wonderful life!—What a wonderful history!"
"Didn't I tell you, Doctor," said Cheapside, "that it was going to be
the longest story in the world?—Took a day and half a night to tell."
"Ah, but it's a story that nobody else could tell," said John Dolittle.
"Good thing too," muttered the Sparrow. "It would never do if there
was many of 'is kind spread around this busy world.—Of course,
meself, I don't believe a word of the yarn. I think he made it all up.
'E 'ad nothin' else to do—sittin' there in the mud, century after
century, cogitatin'."
The journey down through the jungle was completed without
anything special happening. But when they reached the sea and
turned the bow of the canoe westward they came upon a very
remarkable thing. It was an enormous hole in the beach—or rather a
place where the beach had been taken away bodily. Speedy told the
Doctor that it was here that the birds had picked up the stones and
sand on their way to Junganyika. They had literally carried acres of
the seashore nearly a thousand miles inland. Of course in a few
months the action of the surf filled in the hole, so that the place
looked like the rest of the beach.
But that is why, when many years later some learned geologists
visited Lake Junganyika, they said that the seashore gravel on an
island there was a clear proof that the sea had once flowed through
that neighborhood. Which was true—in the days of the Flood. But
the Doctor was the only scientist who knew that Mudface's island,
and the stones that made it, had quite a different history.
On his arrival at the post office the Doctor was given his usual warm
reception by the king and dignitaries of Fantippo who paddled out
from the town to welcome him back.
Tea was served at once; and His Majesty seemed so delighted at
renewing this pleasant custom that John Dolittle was loath to break
the news to him that he must shortly resign from the Foreign Mail
Service and sail for England. However, while they were chatting on
the veranda of the houseboat a fleet of quite large sailing vessels
entered the harbor. These were some of the new merchant craft of
Fantippo which plied regularly up and down the coast, trading with
other African countries. The Doctor pointed out to the king that
mails intended for foreign lands could now be quite easily taken by
these boats to the bigger ports on the coast where vessels from
Europe called every week.
From that the Doctor went on to explain to the King, that much as
he loved Fantippo and its people, he had many things to attend to in
England and must now be thinking of going home. And of course as
none of the natives could talk bird-language, the Swallow Mail would
have to be replaced by the ordinary kind of post office.
The Doctor found that His Majesty was much more distressed at the
prospect of losing his good white friend and his afternoon tea on the
houseboat than at anything else which the change would bring. But
he saw that the Doctor really felt he had to go; and at length, with
tears falling into his tea-cup, he gave permission for the Postmaster
General of Fantippo to resign.
Great was the rejoicing among the Doctor's pets and the patient
swallows when the news got about that John Dolittle was really
going home at last. Gub-Gub and Jip could hardly wait while the last
duties and ceremonies of closing the houseboat to the public and
transferring the Foreign Mails Service to the office in the town were
performed. Dab-Dab bustled cheerfully from morning to night while
Cheapside never ceased to chatter of the glories of London, the
comforts of a city life and all the things he was going to do as soon
as he got back to his beloved native haunts.
There was no end to the complimentary ceremonies which the good
King Koko and his courtiers performed to honor the departing
Doctor. For days and days previous to his sailing, canoes came and
went between the town and the houseboat bearing presents to show
the good will of the Fantippans. During all this, having to keep
smiling the whole time, the Doctor got sadder and sadder at leaving
his good friends. And he was heartily glad when the hour came to
pull up the anchor and put to sea.
People who have written the history of the Kingdom of Fantippo all
devote several chapters to a mysterious white man who in a very
short space of time made enormous improvements in the mail, the
communications, the shipping, the commerce, the education and the
general prosperity of the country. Indeed it was through John
Dolittle's quiet influence that King Koko's reign came to be looked
upon as the Golden Age in Fantippan history. A wooden statue still
stands in the market-place to his memory.
 "A wooden statue still stands to his memory"

The excellent postal service continued after he left. The stamps with
Koko's face on them were as various and as beautiful as ever. On the
occasion of the first annual review of the Fantippo Merchant Fleet a
very fine two-shilling stamp was struck in commemoration, showing
His Majesty inspecting his new ships through a lollipop quizzing-
glass. The King himself became a stamp-collector and his album was
as good as a family photo-album, containing as it did so many
pictures of himself. The only awkward incident that happened in the
record of the post office which the Doctor had done so much to
improve was when some ardent stamp-collectors, wishing to make
the modern stamps rare, plotted to have the King assassinated in
order that the current issues should go out of date. But the plot was
happily discovered before any harm was done.
Years afterwards, the birds visiting Puddleby told the Doctor that the
King still had the flowers in the window-boxes of his old houseboat
carefully tended and watered in his memory. His Majesty, they said,
never gave up the fond hope that some day his good white friend
would come back to Fantippo with his kindly smile, his instructive
conversation and his jolly tea-parties on the post office veranda.

THE END
 *** END OF THE PROJECT GUTENBERG EBOOK DOCTOR
DOLITTLE'S POST OFFICE ***

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