The No-Shirking Wage Curve for Tutors (Figure 6.11)

Calculating an Incentive-Compatible Wage

A software company determines that for its developers to work diligently on a project, the weekly disutility of their effort is equivalent to €45. To ensure developers value their position and avoid being fired, the company also needs to provide an economic benefit of keeping the job valued at €55 per week. What is the minimum total premium the company must pay above a developer's reservation wage to incentivize them not to shirk?

A firm determines that the weekly disutility of effort for its employees is €30. To ensure employees value their jobs, the firm also wants to provide an employment rent of €50. If the firm sets the wage to be €75 above the employees' reservation wage, this will be sufficient to prevent shirking.

Deconstructing the No-Shirking Premium

A consulting firm determines that for a junior analyst, the weekly disutility of effort is €30 and the required employment rent is €40. The analyst's reservation wage is €500 per week. Match each term to its correct weekly monetary value based on this scenario.

Analyzing Wage Components to Determine Effort Cost

A company wants to ensure its graphic designers work diligently. The weekly disutility of effort for a designer is valued at €40. To make the job valuable enough to keep, the company must also provide an economic benefit from employment worth €50 per week. Therefore, to prevent shirking, the company must pay a total premium of €____ above each designer's next best alternative.

Analyzing Components of an Incentive Wage

A firm pays a wage premium to its employees to deter shirking. This premium consists of a component to cover the cost of effort and a component to create an economic rent (the value of keeping the job). The firm then implements a new, more effective performance monitoring system, which increases the likelihood that a shirking employee will be caught. Assuming the difficulty of the work itself does not change, how would this new system most likely affect the necessary wage premium?

A firm determines that the weekly disutility of effort for its employees is €30. To ensure employees value their jobs, the firm also wants to provide an employment rent of €50. If the firm sets the wage to be €75 above the employees' reservation wage, this will be sufficient to prevent shirking.

Deconstructing the No-Shirking Premium