When the Ehrenberg Company closed the Smith Company which pr

When the Ehrenberg Company closed, the Smith Company (which provides no training for its employees) offered to hire any of Ehrenberg’s former employees after they completed a lengthy retraining program at a local vocational institution. The Equal Employment Opportunity Commission (EEOC) noticed that Smith would up hiring only younger workers displaced from Ehrenberg and launched an investigation to see if any age discrimination had occurred. During the investigation Smith claimed that it had hired all of the applicants from Ehrenberg that had successfully completed the retraining program regardless of age. From what you know of human capital theory, is Smith’s claim at all credible?

Solution

Smith\'s claim is consistent in two aspects of human capital theory, the first and most important is that there appears to be negligible costs of hiring and training. Now because it invests absolutely nothing on training of workers, the firm will be eager to hire younger employees. The second aspect may be that only the younger workers may have opted for retraining program considering the cost of this program and expected benefits received. Older workers are less likely o invest in retraining after taking into account the length of service, cost of the retraining and expected improvement in skills.