KAPC, a pharmaceutical company located in rural Kansas, is finding it difficult to retain its employees, who frequently leave after just six months of working at KAPC for jobs at pharmaceutical companies paying higher wages in Chicago. To address its problem with labor turnover, human resource officers at KAPC decide to run an experiment. Of their next 100 newly hired employees, 25 will randomly be selectedto receive a housing voucher worth up to $4,000 per year to offset property taxes. To take advantage of this program, the employee must not only be randomly selected into the program but she must also purchase a home. Of the 25 employees selected into the housing voucher program, 7 leave KAPC within 12 months of starting. Of the 75 employees not selected into the program, 37 leave KAPC within 12 months of starting.
a. Provide an estimate of the effect the housing voucher program has on retention at KAPC.
b. Suppose KAPC spends $10,000 in hiring costs each time a position is vacated. Would you endorse expanding the housing voucher program to all new employees? Justify your decision.

a) Positive Effect.

b) No.

Explanation:

a) Out of the 25 that were offered the housing program, 7 left in the first year after starting.

This proportion goes to,

= 7/25

= 28%

Only 28% of people left when offered the housing program.

When people were not offered the housing program, 37 left in the first year out of 75.

That means the proportion of those who left is,

= 37/75

= 49%.

When people were not offered the programme, 49% of them left. This means that offering the program reduces the turnover rate by 21% which means that it has a positive effect.

b) No it would be more expensive to expand it to everyone.

Currently, the total cost of hiring and offering the program the company is going through is,

= (4,000 * 25 people ) + (10,000 * 7 for those who still left ) + (10,000 * 37 for those who left with no housing plan)

= 100,000 + 70,000 + 370,000

= $540,000

If it is expanded to everyone then the following costs are incurred,

28% of the 100 would still leave even after offered the programme so the company would have to spend to replace them.

= (100 * 4,000 if all Employees offered) + (28 * 10,000 to replace employees that will still leave)

= 400,000 * 280,000

= $680,000

Expanding the program is more expensive than keeping it as it is. They should therefore not expanded it.