Consider a worker's best response curve below. Effort 1 Isocost Line (slope = 0.4/17 = 0.024...

 

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Consider a worker's best response curve below. Effort 1 Isocost Line (slope = 0.4/17 = 0.024 e/S) Best Response Curve 0.4 ✓ $10 $17 Wage Assume a worker has a job that pays $17/hour and they work 40 hours per week. Calculate the total employment rent when the worker's next best alternative (reservation wage) is $10 hour, the disutility of effort at their current job is $2 hour, and the expected duration of unemployment if they lose their job is four weeks. (b) According to the figure above, the worker would choose a higher effort level (0.4) when the wage is $17/hour than they would when the wage is $10/hour (0). Explain why, according to the labor discipline model, this would be true. In other words, according to this model, why do workers increase their effort level when wages are higher? (c) Explain why, according to the figure above, the employer would choose a wage of $17/hour, and not more or less. (d) Calculate this worker's total employment rent if their next best alternative (reservation wage) increased from $10 hour to $12/hour and all other conditions remained unchanged from part (a). (e) If the wage at the worker's next best alternative increased from $10/hour to $12/hour, what does the labor discipline model predict will happen to the employee's effort level at $17/hour? Will it increase, decrease, or stay the same? Explain why a higher reservation wage would have this effect. Consider a worker's best response curve below. Effort 1 Isocost Line (slope = 0.4/17 = 0.024 e/S) Best Response Curve 0.4 ✓ $10 $17 Wage Assume a worker has a job that pays $17/hour and they work 40 hours per week. Calculate the total employment rent when the worker's next best alternative (reservation wage) is $10 hour, the disutility of effort at their current job is $2 hour, and the expected duration of unemployment if they lose their job is four weeks. (b) According to the figure above, the worker would choose a higher effort level (0.4) when the wage is $17/hour than they would when the wage is $10/hour (0). Explain why, according to the labor discipline model, this would be true. In other words, according to this model, why do workers increase their effort level when wages are higher? (c) Explain why, according to the figure above, the employer would choose a wage of $17/hour, and not more or less. (d) Calculate this worker's total employment rent if their next best alternative (reservation wage) increased from $10 hour to $12/hour and all other conditions remained unchanged from part (a). (e) If the wage at the worker's next best alternative increased from $10/hour to $12/hour, what does the labor discipline model predict will happen to the employee's effort level at $17/hour? Will it increase, decrease, or stay the same? Explain why a higher reservation wage would have this effect.

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b According to the labor discipline model workers increase their effort level when wages are higher because higher wages increase the opportunity cost ... View the full answer