Unit 6 The firm and its employees Flashcards
(8 cards)
1
Q
Asymmetric info problem
A
workers know more than owners about the work that’s done
2
Q
Addressing the principal-agent problem
A
- incentivise hard work through ermployment rents
3
Q
Who comprises the labour foce?
A
- people in employment
- unemployed people
4
Q
Benefits of employment
A
- income
- firm specific assets (friends, proximity of work to home etc)
- medical insurance in some countries
- social status
5
Q
Costs of employment
A
- disutility of work
- cost of getting to work
- childcare costs
6
Q
When will employees work hard?
A
when payoff from hard work is greater than the payoff from shirking
h(w - c) > sw + (h - s)wr
7
Q
no shirking wage
A
W = Wr + c + (s / h - s)c
- Wr = reservation wage
- c = cost of required effort
- (s / h - s)c = employment rent - can be small if monitoring is easy (small s), must be large if monitoring is hard (large s)
8
Q
Labour discipline problem
A
wage affects both the # of workers a firm can hire and how hard its employees will work
