High turnover of employees is expensive for firms. The firm not only loses experienced employees, it must also hire and train replacements. A firm is considering several ways to improve its retention (the proportion of employees who continue with the firm after 2 years). The currently favored approach is to offer more vacation days. Improved health benefits are a second alternative, but the high cost of health benefits implies that this benefit must increase retention by at least 0.05 above offering increased vacation days to be a cost effective. To choose between these, a sample of 125 employees in the Midwest was given increased health benefits, and a sample of 140 on the
East Coast was offered increased vacation time.
(a) What are potential confounding effects in this comparison?
(b) Does the data indicate that offering health benefits has statistically significantly higher retention to compensate for switching to health benefits?
(c) Is there a statistically significant difference in retention rates between the benefit plans?