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Analyzing the Impact of Corporate Restructuring on Worker Effort
An employee at a manufacturing plant has worked there for 15 years, expecting to retire from the company. The company announces that due to automation, the employee's entire division will be permanently closed in 18 months. All affected employees are guaranteed their position and current wage until the final day. Analyze how this change from an indefinite to a finite employment period alters the employee's calculation when deciding whether to exert high effort or to shirk. Break down your analysis by explaining the effect on the perceived value of (1) the immediate benefits of shirking and (2) the long-term benefits of continued employment.
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CORE Econ
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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
Analysis in Bloom's Taxonomy
Cognitive Psychology
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Employee's Total Payoff from Working
Employee's Total Payoff from Shirking
Explaining a Persistent Wage Gap
A worker's decision to exert effort depends on comparing the short-term benefits of shirking with the long-term value of their job. A key factor in this calculation is the worker's 'planning horizon'—the total time they consider when evaluating their employment. In which of these situations is the worker's incentive to shirk increased specifically because their planning horizon has shortened?
Comparing Worker Incentives
In a model where workers decide between exerting effort and shirking, a decrease in the worker's planning horizon (the total period they consider for their employment) will, all else being equal, increase the relative attractiveness of shirking.
Evaluating the Planning Horizon in Employment Models
In models of worker effort, the total time period an employee considers when weighing the long-term benefits of keeping their job against the short-term gains from not working hard is known as the worker's ____.
A worker's 'planning horizon' is the total time period they consider when comparing the long-term value of keeping their job against the short-term benefits of not exerting effort. Match each worker scenario to the description that best characterizes their planning horizon in that situation.
A factory worker, who previously expected to work at their job indefinitely, learns that the factory will be permanently closing in 10 weeks. Arrange the following steps to show the logical sequence of how this new information affects the worker's decision-making about exerting effort.
Analyzing the Impact of Corporate Restructuring on Worker Effort
In a model where an employee weighs the long-term benefit of keeping their job against the short-term gain of not exerting effort, which of the following scenarios represents a direct change to the employee's 'planning horizon'?
In a model where workers decide between exerting effort and shirking, a decrease in the worker's planning horizon (the total period they consider for their employment) will, all else being equal, increase the relative attractiveness of shirking.