You are now in the position of making a decision, but you have to justify your decision to the CEO. Using the economic tools and frameworks we have developed, provide economic arguments in defense of all three available options to you (promote, retain at the entry level for another year, terminate). Then make a decision and defend it using economic principles

1. The structure of your firm has two lower-level positions: an entry level position in which each employee receives a one year contract and a second level position (i.e., one step up from entry level) in which employees receive three year contracts. At the end of the first year, entry level employees undergo a formal evaluation that has three possible outcomes: a promotion to the second level position with a three year contract, a renewal of the one year contract for a second year at the entry level, or termination from the firm. At the end of the three year contract at the second level, employees undergo a similar formal evaluation resulting in either renewal for another three years or termination. The firm makes initial hires at both the entry level and second level positions.

As the firm’s HR manager, you have a job applicant you are interested in hiring who has the resume qualifications of someone that you would typically hire at the second level position (with a three year contract). Although you firm has open positions at the entry level, your firm does not currently have any open second level positions, but you anticipate growth will enable you to have a second level position open in one year’s time. Because you like the applicant and don’t want him to take another job, you offer him a job at the entry level position. Even though he is overqualified, you expect he will both enjoy the job and be productive. He accepts and signs the standard one year contract which all entry level employees receive. Because of his qualifications, both you and the applicant expect for him to be promoted to the second level with a three year contract at the end of the first year evaluation.

1. You are now in the position of making a decision, but you have to justify your decision to the CEO. Using the economic tools and frameworks we have developed, provide economic arguments in defense of all three available options to you (promote, retain at the entry level for another year, terminate). Then make a decision and defend it using economic principles.
2. The initially hired employee now wants to be promoted given that his first-year contract is over and there is an open second level position. He undergoes the formal evaluation required at the end of the first-year contract for the entry level employee, but the evaluation scores are poor. You are surprised given that his resume suggested he would be a promising second level employee. What is one economic explanation for the unexpectedly poor evaluation scores?
3. The contract and evaluation structure for this firm has a few modifications relative to the simple probationary period discussed in the lecture. What is one of those modifications and what are the advantages of that modification from the firm’s perspective relative to the simple probationary period?
4.