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.