Consider a second possible reason to hire permanent labor, which is to carry out tasks that cannot be easily monitored by the employer. In this case, the only punishment power that the employer might have been firing the permanent employee from the job. Consider the following information:

(i) The permanent employee must be hired at a fixed wage, call it w, that is paid up front,

(ii) The next best employment that a permanent employee can get is as a casual employee, say at $100 per season (neglect uncertainty and seasonality).

(iii) The employee cannot be monitored, so there is always a danger that he will shirk. This cannot be found out immediately, but suppose that there is evidence of this available by the beginning of next season. Show that the employer must always set w strictly higher than $100, even if there is a large potential supply of permanent workers. Discuss how the difference between w and $100 is affected by:

(a) Alternative uses of the permanent laborer’s time (shirking),

(b) The likelihood of his getting another permanent laborer’s job if he is fired, and

(c) A change in the casual wage, currently set at $100.