Suppose there is a firm in which a typical employee has marginal product that varies by...

 

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Suppose there is a firm in which a typical employee has marginal product that varies by year based on the table that follows. Suppose further that, to motivate its workers to work hard, the firm sequences pay as specified in the table as well. Note: Year 0 = the current year. Marginal Product Year 0 1 2 3 4 6 10 13 15 16 Real Wage 3 8 12 15 ? a. Assuming the real interest rate were 5%, what should the firm pay in the 4th year to guarantee that the typical employee would accept this plan? b. Would this type of pay scheme be more or less likely to be found in a firm that has a clear internal labor market structure? Why? c. Why specifically would this sort of scheme lead to increases in the productivity of the typical employee? d. What effect would a mandatory retirement policy have on the likelihood that a firm would adopt this sort of a pay scheme? Suppose there is a firm in which a typical employee has marginal product that varies by year based on the table that follows. Suppose further that, to motivate its workers to work hard, the firm sequences pay as specified in the table as well. Note: Year 0 = the current year. Marginal Product Year 0 1 2 3 4 6 10 13 15 16 Real Wage 3 8 12 15 ? a. Assuming the real interest rate were 5%, what should the firm pay in the 4th year to guarantee that the typical employee would accept this plan? b. Would this type of pay scheme be more or less likely to be found in a firm that has a clear internal labor market structure? Why? c. Why specifically would this sort of scheme lead to increases in the productivity of the typical employee? d. What effect would a mandatory retirement policy have on the likelihood that a firm would adopt this sort of a pay scheme?

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a Assuming the real interest rate were 5 what should the firm pay in the 4 th year to guarantee that ... View the full answer