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