Hiring a Mix of Entry$-$Level Workers and Skilled Candidates under a Skill$-$Based Pay Program

A product distribution company has recently adopted a highly complex automated operations management system with an artificial intelligence component that requires highly skilled workers. Company growth is strong and it is expected to increase through the next ten years, requiring it to build additional distribution centers. Initially, there were enough highly qualified job candidates with the necessary experience required to perform the job without requiring company investments in training. As growth continued, the supply of similar job candidates relative to the company's need was low. This labor market reality led the company to establish a skill$-$based pay system. The company's analysis of the labor market enabled them to project the mix of employees that will be available $($those who are already fully qualified, needing little training, and those who have the potential to perform well, but who do not have the required skills to perform the jobs$).$

The company offers pay that is $10$ percent above the market average hourly pay rate $)$ to entice the best qualified candidates to accept job offers. Those new hires are productive right from the start with little company training investment. The company offers the other new hires starting pay at $20$ percent below the market average because of the extensive training needed before they can perform their jobs.

Finally, the company employs $500$ workers of whom $40$ percent are paid above the market average and $60$ percent are paid below the market average. Over the next year, the company plans to hire $70$ additional employees of whom $20$ percent are expected to be paid above the market rate and $80$ percent are expected to be paid below the market rate.