The Employment Relationship: Difference between revisions
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:*#ε is an error term with μ=0 | :*#ε is an error term with μ=0 | ||
Note that ''e'', the effort exerted by the worker, is a function of the wage (''w''), the level of monitoring (''m''), and an exogenously determined <nowiki> "next best alternative" </nowiki> we'll call ''z''. Thus, ''e''(''w'',''m'';''z''). | Note that ''e'', the effort exerted by the worker, is a function of the wage (''w''), the level of monitoring (''m''), and an exogenously determined ,br. <nowiki> "next best alternative" </nowiki> we'll call ''z''. Thus, ''e''(''w'',''m'';''z''). | ||
Revision as of 20:46, 22 April 2009
The employment relationship can be basically modeled as followed:
- y=y(he)+ε
- Assumptions:
- y' > 0
- y'' < 0
- h = # of hours worked (assuming 1 hour per worker)
- e ∈ [0,1] (Simply, e is the "effort" term and is equal to the amount per hour that a worker actually works)
- ε is an error term with μ=0
- Assumptions:
Note that e, the effort exerted by the worker, is a function of the wage (w), the level of monitoring (m), and an exogenously determined ,br. "next best alternative" we'll call z. Thus, e(w,m;z).
From this we can easily rearrange terms to get this:
