An employee is paid a wage that is higher than what they could earn in their next best alternative employment. The employee knows there is a chance they could be dismissed if they are found not to be working hard. Which of the following changes would make this employee more likely to exert a high level of effort?

Employee Effort Decision

The Employee's Long-Term Calculation

An employee will always choose to avoid exerting effort if the immediate satisfaction gained from doing so is greater than the difference between their current wage and what they could earn in their next best alternative job.

A rational employee is deciding whether to exert effort or to shirk in their current job. Arrange the following considerations in the logical order that reflects their decision-making process.

An employee is deciding whether to exert effort or shirk. Match each of the following changes in their work environment to its most likely effect on their decision calculus.

Strategies to Incentivize Employee Effort

An employee is more likely to exert effort when the value of their current job is high. This value, which represents the net loss from being dismissed, is calculated as the difference between their current wage and their ______.

Analyzing an Employee's Response to Changing Job Conditions

An employee's current job pays $20/hour, and their reservation option (next best alternative) is valued at $10/hour. A new monitoring system increases the probability of being dismissed for not working to 50%. What hourly wage would have been needed under the old system, which only had a 10% probability of dismissal, to create the same financial disincentive for shirking as the new system does at the $20/hour wage?