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Conflict of Interest from Hourly Pay and Non-Contractible Effort
A fundamental conflict of interest arises in the employment relationship because an employee's effort directly contributes to the firm's profits, but their compensation is often fixed, such as an hourly wage, and not tied to performance. Since workers are paid for their time rather than for the quality or quantity of their output, there is a divergence of interests: the employer wants maximum effort to maximize profit, while the employee's income does not increase with additional effort. This conflict is compounded by the fact that an employee's level of diligence and hard work cannot be perfectly specified or enforced in a contract.
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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
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