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Employment Rent as an Incentive Against Shirking
A wage that only covers a worker's reservation wage and cost of effort (w = w_r + c) makes them indifferent between working and unemployment. To incentivize effort, a firm must pay an additional premium, the employment rent. This is necessary because it takes time to detect a shirking worker. The rent ensures that the value of keeping the job outweighs the potential gains from shirking, thus motivating the employee to work hard.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ 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
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Learn After
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