Question

Consider two employers and their respective optimal turnover policies. The first is a biology department in a research university. To increase the ranking of the department, professors must publish in top journals and win large grants from the NIH (which has a low funding rate). The second is a large chain of department stores which hire retailers and managers to work the cash register and make clothing recommendations for customers based on the store’s current inventory. a) Which employer should aim for relatively high turnover? Give at least two reasons to support your claim. Department of Economics Professor Frank University of Iowa Spring 2018 b) Which employer should aim to reduce turnover? Give at least two reasons why.

Answer 1

a) Large chain of department stores should aim for relatively high turnover as compared to the biology department in the research university because of the following reasons-

1. Working the cash register and recommending clothes is a less specialised task than researching and getting grants from NIH and hence lesser amount of training is required with retailers as compared to professors.

2. Also, there would be lesser pool of qualified professors than great managers. While it is easier to replace a manager and find a better substitute to improve the business, replacing a professor with a better substitute might require a lot of searching costs and hence a higher turnover in chain of departmental stores make sense.

b) The biology department in research university should aim for low turnover for the following reasons

1. Gettings grants from NIH and writing a deserving article to be published in a top journal requires a lot of time and hence by reducing the turnover of professors, their incentives would be kept in place and higher efficiency can be expected

2. Loss of a professor would be a huge cost for the department because of the huge loss of know how as professors generally tend to serve universities for a longer time, they know the research environment and for a new professor to get well placed in the university might take time