Analyzing an Employee's Best Response in the Labour Discipline Game
A key step in the labour discipline model is analyzing an employee's best response to a given wage. This analysis moves beyond a single-period assessment, where shirking is the optimal choice to avoid the cost of effort. Instead, it requires the employee to consider the future consequences of their actions, specifically the risk of being caught and fired. If dismissed, the employee reverts to their reservation option, which has a value equivalent to their reservation wage (). Therefore, the decision to work or shirk depends on comparing the immediate payoff from each choice against this potential long-term outcome.
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CORE Econ
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Economics
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
Related
Calculating an Employee's Economic Rent from Employment
An employee's employment rent represents the net value they get from a job compared to their next best alternative (unemployment). This value is determined by evaluating all aspects of employment, including wages, benefits, and psychological costs like effort, against the value of the alternative. A human resources team is discussing this concept. Which of the following statements reveals a flawed understanding of how employment rent is determined?
An individual's employment rent is the value of their job minus the value of their next best alternative (their 'reservation option'). To calculate this, various factors must be classified correctly. Match each factor below to its appropriate classification within this calculation.
Evaluating Strategies to Increase Employee Effort
An employee receives a promotion that includes a higher hourly wage but also requires a significantly greater level of effort per hour. If the negative value the employee assigns to the extra effort is greater than the positive value of the increased wage, the employee's total employment rent will decrease.
Impact of Policy Change on Employment Rent
An economist is determining an individual's employment rent, which is the net value they gain from their job compared to their next best alternative. To do this correctly, a specific sequence of calculations must be followed. Arrange the following steps into the correct logical order.
An employee earns an hourly wage of $30. They value the negative psychological cost of the effort required for their job at $6 per hour. Their next best alternative is unemployment, which provides a benefit equivalent to $12 per hour and involves no effort. The employee's hourly employment rent is $____.
Evaluating Relative Employment Rent
A company observes high employee turnover and wants to increase its workers' employment rent to encourage them to stay. They are considering two options: Option 1 is a general 10% wage increase. Option 2 is a new workplace wellness program that employees value as reducing the disutility (negative psychological cost) of their effort by an amount equivalent to an 8% wage increase. Assuming the employees' next best alternative (their 'reservation option') remains unchanged, which statement correctly analyzes the impact of these options?
Analyzing an Employee's Best Response in the Labour Discipline Game
Learn After
Comparing Payoffs for Maria's Shirking vs. No-Shirking Options (Figure 6.9)
Employee's Optimal Effort Decision
An employee earns $20 per hour. They can choose to exert full effort, which they experience as a cost equivalent to $3 per hour. Alternatively, they can exert no effort. If they exert no effort, there is a 10% chance each hour that they will be caught and lose their job. The total economic loss if they are fired is valued at $120. To maximize their net hourly gain, what is the employee's best course of action?
An employee is paid a wage where their net benefit from working hard is exactly equal to their expected net benefit from shirking. The firm then invests in a new surveillance system that increases the probability of detecting a shirking employee. Assuming the wage and all other conditions remain the same, how does this change affect the employee's best response?
Evaluating a Manager's Wage Strategy
An employee receives an hourly wage of $25. The personal cost (disutility) of exerting full effort is equivalent to $4 per hour. If this employee were to be fired, the total economic loss is valued at $150. At what hourly probability of being caught for not exerting effort would the employee be exactly indifferent between working with full effort and not exerting effort?
An employee is paid an hourly wage and has determined that their best response is to exert full effort. This is because the net benefit from working hard is currently greater than the expected net benefit from shirking. Which of the following changes, holding all else constant, would be most likely to cause this employee to change their best response to shirking?
An employee earns an hourly wage and experiences a disutility of effort equivalent to $2 per hour when working diligently. If they choose not to work diligently, there is a 5% chance per hour of being caught and fired. For the employee to be motivated to work diligently, the total economic loss from being fired must be at least $____.
Consulting on Employee Motivation
A firm operates in a city where the cost of job loss for an employee is high. The government then introduces a new policy that substantially increases unemployment benefits. Assuming the firm does not change the wage or its monitoring practices, how will this policy change likely affect a typical employee's decision-making process regarding work effort?
A manager wants to ensure an employee exerts effort. The personal cost (disutility) of exerting effort for the employee is valued at $2 per hour. The total economic loss for the employee if they are fired is estimated to be $80. What is the minimum hourly probability of detecting an employee who is not working that the manager must establish to make working diligently the employee's best response?
Employee's Decision Calculus: The Role of Future Consequences
Expected Shirking Duration (s) as a Best Estimate Under Uncertainty
Maria's Two Choices: Exerting Effort vs. Shirking
Assumption of Using Expected Shirking Duration in Payoff Calculation