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Calculating the Minimum Incentive Wage
An employee's next best alternative to their current job provides a benefit equivalent to $10 per hour. To perform their job diligently, the employee experiences a disutility of effort valued at $4 per hour. The employer has a monitoring system with a 50% chance of catching a shirking employee in any given hour. To prevent shirking, the expected loss from being caught and fired must be at least equal to the gain from shirking (avoiding the disutility of effort). What is the minimum hourly wage the employer must pay?
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Social Science
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Economics
Economy
Introduction to Microeconomics Course
CORE Econ
Introduction to Macroeconomics Course
Ch.1 The supply side of the macroeconomy: Unemployment and real wages - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
Ch.6 The firm and its employees - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
Application in Bloom's Taxonomy
Cognitive Psychology
Psychology
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A manufacturing firm pays its assembly line workers a wage that is specifically calculated to be just high enough to make the value of keeping their job greater than the value of being unemployed. Now, suppose the government significantly increases the generosity of unemployment benefits. To maintain the same level of worker effort and prevent slacking, how must the firm adjust the wage it pays, and why?
Worker Motivation at a Call Center
Factors Influencing the No-Shirking Wage
Factors Influencing the No-Shirking Wage
A firm pays its employees a wage premium specifically to discourage them from slacking on the job. If the local unemployment rate decreases substantially, the firm can maintain the same level of worker effort while paying a lower wage.
Worker Incentive Calculation
A firm sets its wage just high enough to create a significant cost of job loss, thereby discouraging employees from shirking. All of the following developments would require the firm to raise this wage to maintain the same level of employee effort, EXCEPT:
Two companies, a software development firm and a data-entry firm, operate in the same city and hire from the same pool of workers. The software firm finds it very difficult to monitor the day-to-day effort of its programmers, as their work is complex and creative. The data-entry firm, however, can easily track its employees' performance through keystrokes per hour. Assuming all other job aspects are identical, which firm would need to set a higher wage specifically to discourage slacking, and what is the economic reasoning?
Calculating the Minimum Incentive Wage
A company wants to set its wages just high enough to motivate employees to work hard. Match each external or internal change with its direct impact on the minimum wage the company must pay to prevent shirking, assuming all other factors remain constant.