Chapter 6 Labour Markets: Wages and Entrepreneurship

Question 1

equilibrium wage

Answer 1

– the wage where supply and demand for labour correspond to each other

• full employment
– the employment situation at the equilibrium wage
– all workers who are willing to work at this wage level find a job

• voluntary unemployment
– the unemployment situation at the equilibrium wage
– all workers who are not willing to work at this wage level are considered “voluntarily” unemployed

Question 2

Fair wage – fair effort hypothesis

Answer 2

– workers’ behaviour in the labour market is governed by fairness: they respond to higher wages with higher effort and to lower wages with lower effort

Question 3

norm of reciprocity

Answer 3

behaviours of others should be returned in kind (e.g., putting in more effort for higher wages)
– reputation (e.g., accepts low wages, does not reciprocate)

Question 4

homo reciprocans

Answer 4

udy with over 20,000 participants showed that people with higher reciprocal inclinations are
– more likely to work overtime
– more satisfied with their lives

Question 5

altruistic punishment

Answer 5

– punishment dealt out by people although they do not profit from this punishment and even when they incur costs by doing so

Question 6

public goods game

Answer 6

– a decision problem where decision-makers can either keep a money amount or give part of it into a common pool.
– sum of contributions in the common pool is usually multiplied by some factor and distributed equally to all decision-makers

• Often used to study cooperation
– largest profit for everyone when all participants give the full amount to the common pool
– however, the dominant strategy is free-riding: each player´s profit is higher when they do not give anything but get a portion of the common pool

Question 7

Valence(Wertigkeit)-instrumentality-expectancy theory (V-I-E theory)

Answer 7

– assumes that motivation is a function of the valuation of outcomes, the subjective connection between an action and outcomes, and the subjective belief about the feasibility(Durchführbarkeit) of an Action

• Valence: subjective intrinsic value of an action, or of the results of an action
• Instrumentality: subjective connection between an action and more or less valuable outcomes
• Expectancy: subjective belief about the feasibility of an action

Question 8

equity-theory

Answer 8

– perceptions of fairness are a function of comparing one’s own ratio of outcomes to inputs with the ratio of outcomes to inputs of other people

Brüche teile, O/I

Question 9

Wage comparison

Answer 9

fferent points of comparison possible: Persons can compare …
– with themselves in another position at the same company
– with themselves in a different company,
– with another person or a group within the Company
– with another person or a group outside the company

• Employees with higher salaries and levels of education choose comparisons outside the organization
• Employees working for the company a long time compare themselves to co-workers
• Employees working for the company a short time choose comparisons from their work history

Question 10

Entrepreneur

Answer 10

a person who detects or creates business opportunities and exploits these opportunities through small and medium-sized firms

Question 11

Specific characteristics seem to be crucial for entrepreneurs

Answer 11

– willingness to take risks
 – independence (autonomy) 
– emotional stability 
– extraversion 
– achievement motivation

Question 12

Regulatory Focus (prevention focus )

Answer 12

a motivational state in which people concentrate on protection and security, as well as on avoiding losses

Question 13

Regulatory Focus (Promotion focus)

Answer 13

a motivational state in which people concentrate on growth and accomplishment, as well as on potential gains

Question 14

Founding a company

Answer 14

• Founding of companies and founding success related to striving for achievement, pursuit of innovation, stress tolerance, need for autonomy, proactive behaviour

– action orientation: tendency to convert intentions into actions
– state orientation: tendency to be bound up in thoughts that relate to current, past or future states and that impede the systematic implementation of an action

Question 15

entrepreneurial alertness

Answer 15

ability to discern business opportunities precisely and quickly and to have a ‘feel’ for them

– true believers: Represent the „typical“ entrepreneur; Would like to bring about change, believe in themselves; High potential and high dedication to founding; Score highest in risk appetite and achievement motivation
– clueless: Little knowledge about the market; become self-employed less often
– practical: Notice new opportunities fast, but tend to overlook them because their attributional style makes them sceptical; take action when they are encouraged, often not confident enough for succeeding
– reluctant: Unmotivated to gather new market information; reasons for becoming entrepreneurs: losing a job etc.;

Question 16

Personality traits and entrepreneur success

Answer 16

– personality only plays a role in the intention to found a company (can explain 20% of the variance in intention)
– personality is less important in the realization and success phases