Consider the following situation. You are a hiring manager and need to distingui
ID: 1109197 • Letter: C
Question
Consider the following situation. You are a hiring manager and need to distinguish between low and high quality candidates. Of course, you are willing to pay high quality candidates more money. Specifically, consider that you are willing to pay 80,000 for a high quality candidate and 60,000 for a low quality tab. The one thing you know is that high quality candidates are less annoyed to sit through training certification classes. The difference is that high quality candidates have a cost of 5,000 whereas low quality candidates have an 8,000 cost. Show how to use this information to get a separating equilibrium and ensure you only hire high quality candidates at high quality positions 1.Explanation / Answer
The main logic in determining the separating equilibrium in the given situation is that, gain in earning for high ability people is enough to justify costs of education, gain in eanings for low ability workers are not enough given the high cost of education.
Thus the equilibrium condition is given as: YH - CH > YL > YH - CL, possible since CH<CL
YH : Income of High ability individual.
CH: Cost of High ability individual.
YL: Income of Low ability Individual.
CL: Cost of Low ability individual.