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You are the human resource manager at a large organization. Each worker in your organization produces output valued at $15 per hour (ie. VMP =
You are the human resource manager at a large organization. Each worker in your organization produces output valued at $15 per hour (ie. VMP = $15). You want to deter shirking and turnover by paying a deferred wage profile where the hourly wage is W = 4/5T, where T is tenure, or length of time that the person remains with the firm.
- Draw the diagram of the deferred wage profile.
- Solve for the breakeven point, or length of time the person would have to stay with the firm so that her wage would just equal their productivity.
- Determine the length of time she would have to stay with the firm for her expected wage over that period to just equal her productivity (assume no discounting so that a dollar today is the same as a dollar in the future).
- If the vast majority of the people start working with the firm at age 35, what mandatory retirement age would you pick to provide a termination data to that contractual agreement?
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