Suppose There Are Two Kinds of Workers, Good and Bad

question 84

Essay

Suppose there are two kinds of workers, good and bad. Both types are equally numerous. Good workers are worth $100,000 to a firm; bad workers are worth $25,000 to the same firm. It costs good workers $25,000 to complete school, but $50,000 for bad workers to do so. The firm can tell if a worker finished school, but cannot observe their quality directly. Workers can earn 50% of their value to the firm if they choose to be
self- employed. In any equilibrium, the employer must maximize profits, good workers must not want to look like bad workers, and bad workers must not want to look like good workers.
i)What are the equilibrium wages for educated workers? What about for noneducated workers?
ii)What is the average return per worker for the firm?

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Definitions:

Strategies

Plans of action designed to achieve long-term or overall aims and objectives.

Networking

Building and maintaining professional relationships to exchange information, advice, and support, often pivotal for career development and opportunities.

Mindset

The established set of attitudes or beliefs held by an individual or group that influences behavior and perceptions.

Co-Mentoring

A reciprocal learning relationship where two individuals provide mutual guidance, support, and feedback to each other.