Answered step by step
Verified Expert Solution
Link Copied!
Question
1 Approved Answer

Pearl works as an administrator in the School of Economics at the University of Cape Town (UCT). Currently, Pearl is working from home for 35

Pearl works as an administrator in the School of Economics at the University of Cape Town (UCT). Currently, Pearl is working from home for 35 hours a week, and has to answer course-related emails and capture students’ marks for tests and assignments. For this work, Pearl is paid a wage rate of R130 per hour and exerts an effort level of 0.65. The disutility of effort cost is equivalent to a R25 per hour monetary cost to Pearl. If Pearl were to lose her job at the School of Economics, she would be entitled to claim UIF to a value of R65 per hour for a maximum period of 12 weeks. However, given the current job market, Pearl knows it would take 10 weeks to find another administrative job that pays her R130 per hour.

a) Briefly discuss whether the wage of R130 that Pearl is being paid is an efficiency wage or not. Make sure to clearly explain the concept of an efficiency wage in your answer. (I have stated that the concept of an efficiency wage is: An efficiency wage is one that is set above the employee’s reservation wage in order to encourage them to exert effort over and above what they would have done otherwise.)

As part of UCT’s phased return to work, Pearl has been told that she needs to stop working from home and instead report to her office on campus to work from there. Rules and regulations surrounding Pearl’s return to campus include the fact that she needs to do a daily health screening, sanitise at all entrances to buildings and offices, as well as wear a mask throughout the day, even when alone in her office. These rules increase the cost of effort for Pearl to a cost of R40 per hour.

b) Using the labour-discipline model, show how the change in Pearl’s cost of effort would impact on her equilibrium wage and effort levels.

Step by Step Solution

3.48 Rating (161 Votes )

There are 3 Steps involved in it

Step: 1

aThe wage of R130 that Pearl is being paid is not an efficiency wage The concept of an efficiency wa... blur-text-image
Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Probability & Statistics For Engineers & Scientists

Authors: Ronald E. Walpole, Raymond H. Myers, Sharon L. Myers, Keying

7th Edition

9789813131279, 130415294, 9813131276, 978-0130415295

More Books

Students explore these related Economics questions