Reference no: EM133600796

Case- Clarkson Caterers:Clarkson Caterers is a small, family-owned firm in the catering business. Theyspecialize in catering corporate functions and weddings. The firm employs about20 people (many part-time), and has been in existence for 26 years. It is aprofitable firm, though it has struggled some in the past few years because of theaggressive tactics of some of its larger competitors.Joyce Clarkson, the founder of the firm, is retiring soon, and her son, Marcus,has begun to take over day-to-day operations. In preparation for assuming fullcontrol, Marcus is getting a business degree at night. He currently is taking theclass, "microeconomic theory." His professor just finished covering the topic ofneoclassical economics.One of the things Marcus learned in class is that the point at which supply meetsdemand is a thing called the "market clearing wage". To maximize profit, firmsmust pay the market clearing rate, according to neoclassical economics. Marcuswonders how this relates to the rates he pays for some of the positions atClarkson. In particular, he is concerned about the pay levels of the cook and thesecretary/receptionist positions.There are both turnover and morale problems with the cooks at Clarkson.Marcus indicated that he has a tough time keeping the cooks, as they quitregularly - particularly since he began assuming more control in the firm. Hismother, Joyce, was good at working with the cooks, joking with them, pitching inand working along side of them, and in general making them feel part of thebusiness. Joyce now spends little time with the firm, and Marcus says that hedoes not have time to work with the cooks. He says is trying to fend off thecompetition, and make the business grow. He spends a significant amount oftime trying to generate new clients.Marcus once worked as a cook with Clarkson, but that was several years ago.Some of the cooks allege that Marcus treats them in an arrogant manner.Clarkson's high (even by occupational standards) turnover of cooks is causingproblems because they often find themselves shorthanded at the worst times,like during an important job. Some embarrassing mistakes recently byinexperienced cooks have caused a couple of long-time corporate customers tothreaten to pull their business from Clarkson. Marcus argues that although hispay rates for cooks are somewhat below the average, it has always been thatway, even under Joyce.As for the receptionist/secretary position, they have had only threereceptionist/secretaries in the 26 years of their existence. This is crucial, Marcusindicated, because the receptionist/secretary is an important position atClarkson. Eve, the receptionist/secretary, often answers customers' questionsand is the first to deal with them if there are problems. Many of the customersknow and trust Eve, as she has been there 10 years. Also, a significant amountof their new business comes through email to the firm and their 1-800 number,which go to Eve. An unreliable, rude, or incompetent receptionist/secretarycould mean a loss of business for the firm.They pay Eve well; 25-30% above the market average. But Marcus wonders ifthey are paying too much. Eve is planning to retire soon. Marcus has todetermine how much he is willing to pay a new receptionist/secretary.

Question: Clarkson Inc. needs some guidance about their pay policies. There is no suchthing as a (single) market clearing rate. There is a range of rates for the exactsame job. Why? Where in the range should they be for 1) the cooks and 2) thereceptionist/secretary?