Unit 6.3 And 6.4 Flashcards
What are incentives
Monetary value of trying to encourage people to put in effort
What is piece rate work
Workers paid according to productivity
Paid more for more work
Why don’t people pay workers per item
Difficult to measure output
Mostly collaborative work where you cannot measure each individual contribution
What is reservation wage
Lowest possible wage willing to work for
Indifferent between working and not working
What is employment rent
Difference in net value of employment and net value of next best option (unemployment)
What are the benefits of employment rent
Reduces recruitment cost to firms : encourages workers to stay at firm
It provides managers and owners great power : employees are valuable to lose so employers can threaten to fire them
What are the components of employment rent
Lost income while searching new job
Costs required to start a new job
Loss of non wage benefits
Social costs
How to calculate employment rent
Compare Cost and benefits of employment vs unemployment
What are the costs
Disutility of work
Cost of travelling to work each day
What are the benefits
Wage income
Firm specific assets
Medical insurance
Social status that comes with being unemployed
