The Employment Relationship

The employment relationship can be basically modeled as followed:

y=y(he)+ε

 :*Assumptions: 
:*#''y''' > 0 
:*#''y'''' < 0 (Note: Assumptions 1 and 2 constitute the standard assumptions for a maximization problem)
:*#''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 

Home