An employee values the personal cost of working diligently at $5 per hour. If they do not work diligently, there is a 20% chance they will be caught and fired, at which point their next best employment option pays $15 per hour. What is the minimum hourly wage this company must pay to ensure the employee's expected payoff from working diligently is at least as high as their expected payoff from not working diligently?
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.6 The firm and its employees - The Economy 2.0 Microeconomics @ CORE Econ
Application in Bloom's Taxonomy
Cognitive Psychology
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Wage Policy and Employee Effort
A company sets a wage for its workers that is high enough to make the value of keeping the job greater than the combined value of shirking (and getting away with it) and the risk of being fired. According to the principles of employee motivation this wage is designed to address, why does this strategy encourage diligent work?
Incentivizing Employee Effort
Incentivizing Employee Effort
A company observes that many of its employees are not working diligently. The current wage is equal to the average market rate, meaning a fired employee can likely find a similar-paying job elsewhere. The company wants to implement a new policy to ensure the value of working diligently is greater than the value of shirking. Which of the following proposed policies is LEAST likely to achieve this goal?
A company wants to design a compensation and oversight plan to provide the strongest possible motivation for its employees to work diligently. The company understands that an employee's decision to work hard depends on both the value of keeping their job and the likelihood of being caught if they do not. Which of the following combinations of wage level and monitoring intensity would be most effective at achieving the company's goal?
An employer can ensure an employee will work diligently solely by offering a wage significantly above the market rate, even if the chance of being caught for not working is extremely low.
A firm is considering different strategies to ensure its employees work diligently. Match each strategy with the most likely employee behavioral outcome based on the principle that employees compare the value of working hard versus not working hard.
Critique of a Productivity Improvement Plan
An employee values the personal cost of working diligently at $5 per hour. If they do not work diligently, there is a 20% chance they will be caught and fired, at which point their next best employment option pays $15 per hour. What is the minimum hourly wage this company must pay to ensure the employee's expected payoff from working diligently is at least as high as their expected payoff from not working diligently?