Personnel Economics for Managers
Chapter 4 - Exercise
1. You have to hire workers for a particular job and cannot identify the productivity of a
worker during the job interview. Instead, you can screen workers at costs of $ 12,000 each.
The market wage of a worker is $ 30,000. You have ten applicants and no production
constraint, so you can deliberately choose the number of workers to hire. You know that your
sample is representative of the following general distribution of workers.
Proportion
Average output in 1000$
A
0.1
- 10
B
0.1
0
C
0.2
10
D
0.2
60
E
0.3
150
F
0.1
250
What is the profit-maximizing strategy - to screen or not to screen? Who will be hired?
2. The "Artificial Intelligence (AI) Corporation" has two divisions: Manufacturing and Sales.
When a new worker is hired both she and her supervisor are equally ignorant about her
ability. There is no skill involved in making and marketing AI robots; however, natural ability
matters a great deal. An individual assigned to marketing either sells 12 AI robots a year or
she sells nothing. Similarly, a production worker is either able to produce 12 robots a year or
she is not able to produce any robots at all. It is known that:
-
everybody capable of selling robots is capable of making them
one out of four people can both sell and make robots
two out of four people are capable of making robots
A probationary period under expensive managerial supervision is necessary in order to learn
the individual's type. The costs associated with the probationary period in manufacturing are
$ 10,000. In other words, at a cost of $ 10,000 the firm can learn if a particular worker is
capable of producing robots. In order to evaluate the individual's marketing ability, a more
expensive screening procedure is needed. It costs $ 30,000 to find out if a person is able to
sell robots. Currently, this firm is hiring entry level workers only into manufacturing. Those
who do not show themselves as able robot-makers are dismissed after probation. Some of
the able robot-makers are retained in manufacturing, while others are given an opportunity to
do probation in marketing. That is, they are screened for ability to sell robots, at a cost of
$ 30,000 to the company. Those who fail in marketing are sent back to the robot
manufacturing division. Can this policy be improved? Explain. Which of the following options
best describes your answer?
a) The firm will do better by hiring some of the workers directly into marketing. It makes
little sense to take an able robot maker from manufacturing and send her to costly
marketing probation knowing that h e will fail there with probability 1/2.
b) The company will do better by firing workers who failed in marketing.
c) The firm can improve its profits by hiring workers only into marketing, where their
ability to sell robots is tested, and then transferring some into manufacturing.
d) The firm is following the optimal screening strategy.