In a typical hiring scenario, an employer must decide whether to hire someone fo

Question

In a typical hiring scenario, an employer must decide whether to hire someone for a position, and who that person should be. This leads to all sorts of challenges. Consider the following scenario:

A company that manufactures kloycks has to decide whether to hire skilled workers or unskilled workers. (For simplicity, we will assume that there are exactly two skill levels – unskilled and skilled – and that both the worker and the company know who is skilled and who is unskilled ahead of time.) The company knows that skilled workers can produce 6 kloycks per hour and unskilled workers can produce 4 kloycks per hour. Furthermore, the company knows that the skilled worker’s next best job opportunity pays $20 per hour and that the unskilled worker’s next best opportunity pays $16 per hour. There are no other marginal costs associated with kloyck production.

If the firm were to pay an hourly wage, which worker makes more sense to hire, the skilled or unskilled workere? Explain.

Explanation / Answer

skilled workers can produce 6 Kloycks per hour while unskilled worker can produce only 4. Skilled worker is 50 % more efficiency ( 6/4*100) than unskilled worker. Coming to cost , skilled worker is 25 % more expensive (20/16*100) than unskilled worker. Hence, Firm must hire skilled worker as extra benefit shall be 50 % while cost would be 25 %.

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