Question 1

Workers in the private sector should not be paid more than those in the public sector because of productivity considerations&#10;A) Since it is difficult to measure performance in the public sector&#10;B) Since otherwise it will be difficult to recruit in the public sector&#10;C) Private sector workers have more capital to work with&#10;D) It is necessary for there to be a 'going rate' of pay to avoid distortionary output losses.

Accepted Answer

In order to avoid distortionary output losses, it is necessary for there to be a 'going rate' of pay. If private sector workers are paid significantly more than public sector workers, it will create a distortion in the labor market and may result in output losses. While it may be difficult to measure performance in the public sector (A), this is not a sufficient reason to not pay public sector workers competitively. Similarly, while it may be difficult to recruit in the public sector if private sector workers are paid significantly more (B), this is not a productivity consideration. Lastly, private sector workers having more capital to work with (C) is not necessarily related to productivity, and may not always be true in practice.

Question 2

The optimal length of workweek occurs when&#10;A) The worker becomes too tired to work at maximum efficiency&#10;B) The probability of accidents is minimised&#10;C) The marginal utility of wage income equals the marginal disutility of work&#10;D) There is uniformity of hours across industries.

Accepted Answer

The optimal length of workweek is when the marginal utility of wage income equals the marginal disutility of work. This means that the additional income earned from working an additional hour is matched by the decrease in satisfaction or utility from working that hour. This balance ensures that workers are motivated to work efficiently without becoming overworked or burnt out, ultimately leading to a sustainable and productive workforce.

Question 3

A principal-agent problem arises when&#10;A) It is not possible to monitor performance effectively&#10;B) There is a lack of trust between the principal and the agent&#10;C) There is a moral hazard problem&#10;D) The agent possesses more information about the job than the principal.

Accepted Answer

D

Question 4

Piece rates will be preferred to time rates provided&#10;A) It is easy to measure output&#10;B) The risk of overpayment is limited&#10;C) The supply of effort is elastic&#10;D) All of these apply.

Accepted Answer

All three criteria are important for piece rates to be preferred over time rates. If output is difficult to measure, then it may lead to disputes or inefficiencies in payment. If there is a high risk of overpayment, then employers may be hesitant to offer piece rates. And if the supply of effort is not elastic, then workers may not be motivated to work harder to increase their pay. Therefore, for piece rates to be an effective payment system, all three criteria must apply.

Question 5

Piece work will maximise incentives&#10;A) If it is based on groups rather than individuals&#10;B) If it helps to attract and retain more productive individuals&#10;C) Regardless of the characteristics of the firm&#10;D) If shoddy work can be avoided.

Accepted Answer

The answer of Piece work will maximise incentives&#10;A) If it...

Question 6

Tournament theory is based on the proposition that&#10;A) It is absolute rather than relative performance that matters&#10;B) There is a linear relationship between pay and organisational level&#10;C) It is the spread between the top and next highest salary that matters&#10;D) Internal labour markets with promotion from within is an alternative approach.

Accepted Answer

Tournament theory is based on the idea that it is the spread between the top and the next highest salary that matters, rather than absolute or relative performance or a linear relationship between pay and organizational level. The theory suggests that employees are motivated to compete for a top position and will work harder to achieve it if there is a significant difference in pay between that position and the next highest level. This can result in greater productivity and performance from employees. Internal labor markets with promotion from within is not an alternative approach to tournament theory, but rather a related concept that can be applied in conjunction with it.

Question 7

Labour managed firms&#10;A) Will attempt to maximise profits&#10;B) Are Pareto optimal if perfect competition prevails&#10;C) Avoid the problem of risk&#10;D) Require free and costless entry of firms if perverse effects are to be avoided.

Accepted Answer

Labour-managed firms are Pareto optimal if perfect competition prevails and require free and costless entry of firms if perverse effects are to be avoided.

Question 8

Profit sharing can&#10;A) Guarantee workers against income risk&#10;B) Reduce the level of unemployment unless c is absent&#10;C) Force up the wage level&#10;D) Encourage all employees to increase effort regardless of the size of firm.

Accepted Answer

The answer of Profit sharing can&#10;A) Guarantee workers against income...

Deck 9: Wage Incentives