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ECON303: Labor Economics

  • Unit 11: Compensation and Productivity  

     Labor market contracts and the overall compensation packages that firms provide to their employees can affect a worker's productivity level.  Even if two workers have the same level of human capital, they may differ from one another in their respective work habits, level of motivation, and responsiveness to their environment, among other things.  Quite often, the firms cannot gauge the productivity of their employees when they are hired.  Given the above situation, firms must choose appropriate management strategies and offer the right compensation packages to their employees so as to provide a high level of work incentive and optimize worker productivity.  This unit examines how compensation packages affect worker productivity and firm profits.

    Unit 11 Time Advisory

    This unit should take you 4 hours to complete.

    ☐    Subunits 11.1-11.4: 4 hours

    Unit11 Learning Outcomes

    Upon successful completion of this unit, students will be able to:

    - Describe the principal agent problem in labor markets.

    • Identify how firms choose appropriate compensation packages for their employees and how those packages affect worker productivity.
    • Reading: New York University: Professor Matthew Wiswall’s “Lecture Notes on Labor Economics”

      Link: New York University: Professor Matthew Wiswall's “Lecture Notes on Labor Economics” (PDF)
       
      Instructions: Please choose “Lecture Notes” from the list to access the pdf file with the lecture notes.  Scroll down to page 63, section 7 (“Employment Contracting and Personnel Economics") and read the section in its entirety, all the way up to page 73.  This reading covers subunits 11.1-11.4.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

    • Reading: The World Bank: Hanan G. Jacoby and Ghazala Mansuri’s “Incentives, Supervision, and Sharecropper Productivity”

      Link: The World Bank: Hanan G. Jacoby and Ghazala Mansuri’s “Incentives, Supervision, and Sharecropper Productivity” (HTML)
       
      Instructions: Scroll down and download either the PDF or txt version of this paper.
       
      Terms of Use: This resource is licensed under a Creative Commons Attribution 3.0 Unported license. It is attributed to Hanan G. Jacoby and Ghazala Mansuri.

  • 11.1 The Principal Agent Problems in Labor Markets  

    Note: This subunit is covered by the reading assigned below Unit 11.

  • 11.2 Incentives and Motivation for Employees  

  • 11.2.1 Compensation levels on the basis of Productivity: Piece Rates  

    Note: This subunit is covered by the reading assigned below Unit 11.

  • 11.2.2 Compensation on the Basis of Performance  

  • 11.2.2.1 Bonuses and Profit Sharing  

    Note: This subunit is covered by the reading assigned below Unit 11.

  • 11.2.2.2 Tournaments  

    Note: This subunit is covered by the reading assigned below Unit 11.

  • 11.3 Deferred Compensation  

    Note: This subunit is covered by the reading assigned below Unit 11.

  • 11.4 Efficiency Wages  

    Note: This subunit is covered by the reading assigned below Unit 11.