You are the human resource manager at a large organization. Each worker in your organization produces output valued at $10 per hour (i.e., VMP = $10). You want to deter shirking and turnover by paying a deferred wage profile where the hourly wage is W = 2/3T, where T is the tenure, or length of time that the worker remains with the firm (i.e., after 10 years the worker would earn W = 2/3(10) or $6.67 per hour).
a) Draw the diagram of the deferred wage profile.
b) Could this profile persist?
c) Solve for the breakeven point, or length of time the person would have to stay with the firm so that her wage would just equal their productivity.
d) If the vast majority of the workers start working with the firm at age 35, what mandatory retirement age would you pick to provide a termination date to that contractual arrangement?
