Part 2

(a) Below are 3 statements about promotion incentives and relative evaluation. First
decide if they are correct or not and briefly explain why you did or did not decide if they
are correct.

i. Ordinal evaluations (rankings) are usually less accurate than cardinal
evaluations (level of performance).

ii. In deciding who to promote, there is a tradeoff between quality and quantity.
If you promote based on a tournament (competition), you know how many will be
promoted but not how good they are. If you promote based on an absolute performance
standard, you control quality of those promoted, but not quantity. There is no way to avoid
this tradeoff.

iii. Relative evaluation (benchmarking) generally reduces performance measure
risk, without distorting incentives.

(3 marks)
(b) Due to poor financial performance, a firm has to lay off employees. The head of HR
would like to lay off those employees for which the firms (firm-specific) human capital
investments have the smallest net present value. Would those employees be the ones
with shortest tenure with the firm, medium tenure with the firm, or longest tenure with the
firm? Explain briefly.(5 marks)

Herewith the Part III of the assignmnet question for Economics of Labour markets.

Trade unions in South Africa play a significant role in the economy. Trade unions have been
active in responding to the fiscal policies of government. Unions argue that their proposals for the
budget will increase economic growth and support job creation. Criticism of trade union views on
the budget has focused on the affordability of these proposals, and on their impacts on business
growth. Your essay should review recent submissions from trade unions, and provide a critical
analysis of their proposals. Will trade union alternatives on the budget support economic growth
and economic inclusion?

The word limitation is 1500 words for this section of the assignment.

The due date for the assignment is Friday 16 May 2014.