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