Problem 7 1+R' See also Lecture 24 on on-the-job training". Suppose a company has hired a new employee. There are two periods: t = 1 and t = 2. If the employee is immediately put to work, her productivity to the firm would be valued at $100000 in every period. However, if the company would first give her some additional on-the-job training (which lasts for one period), her productivity would only be $60000 during the first apprenticeship period, but would go up to $150000 in the second period. Assume the training in period 1 consists fully of general skills, which the worker could take with her to potential future (identical) employers in period 2 if she quits or gets fired. Assume a perfectly competitive labor market. Suppose the firm has a discount rate is r = 5%. The worker has a discount rate of R= 8% and a utility function given by U = wi+ 47 where wt denotes her wage in period t = 1,2. a) First, suppose the worker does not get the training. How much would she get paid in every period? What would be the firm's total (discounted) profit and the worker's utility? b) Next, suppose the worker gets the training. How much would she get paid in every period? Explain your reasoning (e.g. by using backward induction arguments). What would be the firm's total (discounted) profit and the worker's utility? c) Is it efficient (i.e. welfare maximizing) to have the firm invest in the worker's human capital or not? Does your answer depend on the value of either the firm's and/or the worker's discount rates? Problem 7 1+R' See also Lecture 24 on on-the-job training". Suppose a company has hired a new employee. There are two periods: t = 1 and t = 2. If the employee is immediately put to work, her productivity to the firm would be valued at $100000 in every period. However, if the company would first give her some additional on-the-job training (which lasts for one period), her productivity would only be $60000 during the first apprenticeship period, but would go up to $150000 in the second period. Assume the training in period 1 consists fully of general skills, which the worker could take with her to potential future (identical) employers in period 2 if she quits or gets fired. Assume a perfectly competitive labor market. Suppose the firm has a discount rate is r = 5%. The worker has a discount rate of R= 8% and a utility function given by U = wi+ 47 where wt denotes her wage in period t = 1,2. a) First, suppose the worker does not get the training. How much would she get paid in every period? What would be the firm's total (discounted) profit and the worker's utility? b) Next, suppose the worker gets the training. How much would she get paid in every period? Explain your reasoning (e.g. by using backward induction arguments). What would be the firm's total (discounted) profit and the worker's utility? c) Is it efficient (i.e. welfare maximizing) to have the firm invest in the worker's human capital or not? Does your answer depend on the value of either the firm's and/or the worker's discount rates
