The Effect of Worker Productivity on Production Smoothing

In this paper the assumptions of constant wages and productivity in the production smoothing problem are dropped in favor of a model which explicitly treats changes in them through employee experience. The model is an extension of the Hanssmann-Hess model and hence the necessary transformation to convert the problem into linear programming format are provided. Finally some numerical calculations are made to illustrate the use of the model. These calculations suggest that when the difference in productivity between old and new workers is quite large, as would be the case in a skilled-labor-intensive industry, the extended model represents a substantial improvement over the original Hanssmann-Hess model.