Answer to Question #307212 in Economics of Enterprise for stellar

Question

On-the-job experience typically enhances a person’s productivity in that particular job. If theperson’s salary increases to reflect increased experience but the additional experience has no relevance for other jobs, does this higher salary reflect an increase in opportunity cost or in economic rent?

Answer 1

On the job experience enhances output of manpower as an employee works under somebody .It enables one to know how to maximize output in the firm. As one works while learning improves efficiency of employees.Many institutions embrace getting fresh graduates from university and training them on the job.Employing experienced employees has proved expensive to many institutions.On job training is also efficiency as institution instill values that it will like employees of institution to embrace while working for the organization.

But if the persons salary increased this will be just an economic rent.This is payment paid to employees in excess of costs needed to bring that factor into production. To save on cost of production, institution should be able to determine the optimal cost of production for the institution. If an institution is not able to determine the optimum level of cost of labour, it will end up paying for labour that doesn't benefit the organization.It's always advisable to cut on unnecessary expenditure.