Simplifying Assumption for a Constant Wage Premium in the Labor Discipline Model
While the factors determining the wage premium needed to incentivize effort vary in reality from person to person and firm to firm, the labor discipline model makes a simplifying assumption. It posits that these factors are the same for all workers, which implies that the additional payment required to ensure effort is a constant amount across the workforce.
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Ch.1 The supply side of the macroeconomy: Unemployment and real wages - The Economy 2.0 Macroeconomics @ CORE Econ
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Simplifying Assumption for a Constant Wage Premium in the Labor Discipline Model
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Imagine an economy experiences a significant rise in the general unemployment rate. Considering the factors that influence a worker's decision to exert effort, how would this change likely affect the size of the additional wage payment (the 'premium') a firm must offer above a worker's minimum acceptable wage to ensure high performance?
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