Search the Web - For Jobs
Subject Comparative Statics
Topic Production and Costs
Key Words Employers, advertising, technology, employees, salary, savings, efficiency, cost, vacancies, productivity
News Story

Traditionally, employers have recruited staff by advertising in newspapers and by receiving and responding to resumes through the mail. Now, increasingly, employers are making use of new technology. Software has been developed that uses the Internet to put prospective employees in touch with a company's human resources department, and manages the application and hiring process in its entirety. For example, web sites can present screening questions, such as concerning salary requirements and willingness to travel, and may be used for on-line testing.

The benefits are speed, savings, and efficiency. Bell Canada estimates that recruiting time has been reduced by 15 days. Alliance Atlantis recently screened 596 resumes for 34 jobs in two weeks, a task that would have taken two months in the past. Recruitsoft believes that the average cost of recruiting a person is reduced from $6,000 to $4,500 by using new technology. The sooner vacancies are filled, the higher the level of productivity. The Internet also allows companies to advertise more widely than through newspapers and journals, helping them to attract better applicants .

(Updated January 1, 2001)

1. A given number of people can be hired through a variety of combinations of electronic (capital-intensive) and paper (labor-intensive) methods.
a) Draw two axes representing the amount of capital and labor used in the recruitment process. Add an isoquant for a specific number of hires.
b) Explain what the isoquant shows.
c) Why does it have the curvature that you have drawn?
2. The relative cost of using capital versus labor can be represented with an isocost line.
a) Draw an isocost line on your diagram such that it is tangent to the isoquant.
b) Explain how the line shows the relative cost of capital and labor.
c) What is the optimal combination of labor and capital that the firm should use to hire the given number of people? Mark it on your diagram. Explain why it is the best position for the firm.
3. With recent changes in technology, assume that the marginal productivity of capital is greater than before.
a) How does this affect the position and slope of the isoquant? Illustrate. Explain what you have drawn.
b) How does this affect the optimal combination of capital and labor for the firm? If necessary draw a new budget line with the same slope as before. How is the relative mix of labor and capital affected?
4. a) If, in addition, the advances in technology have reduced the price of capital relative to the price of labor, how would the budget line be affected? Explain.
b) What would happen to the optimal factor combination? Draw a new budget line and mark the new optimal point.
Source Randy Ray, "Web expands recruiting role," The Globe and Mail, November 10, 2000.

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