Theory and Methodology Hiring policies in an uncertain environment: Cost and productivity trade-os

Firms naturally want to hire workers who are fast-learners and committed for long periods. Finding such people or carefully screening applicants is costly whether done directly by the ®rm or with the help of a recruitment agency. We explore the trade-o€s involved in determining the e€ort/investment that should be expended on ``quality control'' in hiring. We envision a ®rm that has to decide which proportion of its hiring to do using a ``careful'' but expensive agency. Agencies may provide discounts to ®rms who do most of their hiring through them. Workers di€er in their learning curve and in their (random) length of stay in the job/®rm. We provide sucient conditions for using only one agency. We also explore the relations between turnover and productivity, which at times turn out to be quite counterintuitive. For example, reduced turnover may adversely e€ect productivity even in the presence of learning with experience. Ó 2000 Elsevier Science B.V. All rights reserved.