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BSZ_IM_Ch14_4e - Managerial Economics and Organizational...

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Managerial Economics and Organizational Architecture Instructor’s Manual Part 1: Chapter Overview and Solutions Chapter 14: Page 1 CHAPTER 14 A TTRACTING AND R ETAINING Q UALIFIED E MPLOYEES This chapter is the first of two chapters on compensation policy (reward system). It concentrates on how managers design compensation packages to attract and retain qualified employees. It begins by providing a benchmark economic model of employment and wages (the standard competitive model). Subsequently, this basic model is extended to consider the implications of costly information about market wage rates, compensating differentials, investments in human capital, internal labor markets, and the choice between salary and fringe benefits. C HAPTER O UTLINE C ONTRACTING O BJECTIVES T HE L EVEL OF P AY The Basic Competitive Model Human Capital Compensating Differentials Costly Information about Market Wage Rates I NTERNAL L ABOR M ARKETS Reasons for Long-Term Employment Relationships Costs of Internal Labor Markets P AY IN I NTERNAL L ABOR M ARKETS Careers and Lifetime Pay Influence Costs T HE S ALARY -F RINGE B ENEFIT M IX Employee Preferences Employer Considerations The Salary-Fringe Benefit Choice S UMMARY T EACHING THE C HAPTER This chapter contains important material. Since students can understand most of this material by reading the book, we simply highlight the main points from the chapter. We sometimes ask the students questions as a concept check (for example, those at the end of the chapter). We typically don’t assign a separate case for this chapter. However, issues from this chapter surface in a number of cases that we employ to cover the more
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