Suppose a firm the firm's initial costs when hiring a worker include hiring and training costs of $50. The wage rate for each period of employment is W_t=$100 (the same for all periods), and the value marginal product of a worker is also the same in every period, VMP_t=VMP (a constant). Assume the interest rate is zero (the firm has no discounting factor over time).

A. Write out this firm's profit maximizing employment rule for two periods. How productive must a worker be each period in order for the firm to hire a worker expected to work 2 periods: VMP = . If VMP=110 is it worth it to hire a worker for 3 periods? (yes/no)

B. Now suppose that the union negotiates a signing bonus of $100 which the firm must pay initially (in addition to the hiring and training costs) when it hires a worker. Write out the new profit maximizing employment rule for two periods. How productive must a worker be each period in order for the firm to hire a worker expected to work 2 periods: VMP = . In order for the firm to hire a worker for 3 periods, a worker's productivity in each period must be VMP = .

C. Explain how this might relate to the observation that unionized workers have lower turnover rates.

Answer rating: 100% (QA)

A The firms profitmaximizing employment rule for two periods is to hire a worker if the present valu... View the full answer