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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

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2
Q

Addressing the principal-agent problem

A
  • incentivise hard work through ermployment rents
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3
Q

Who comprises the labour foce?

A
  • people in employment
  • unemployed people
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4
Q

Benefits of employment

A
  • income
  • firm specific assets (friends, proximity of work to home etc)
  • medical insurance in some countries
  • social status
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5
Q

Costs of employment

A
  • disutility of work
  • cost of getting to work
  • childcare costs
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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

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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)

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8
Q

Labour discipline problem

A

wage affects both the # of workers a firm can hire and how hard its employees will work

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