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Optimal Work Effort and Monitoring Cost

  • Tamara Todorova

    (American University in Bulgaria)

Using a simple job market equilibrium model we study the relationship between work effort and monitoring by firms. Some other determinants of work effort investigated include the educational level of the worker, the minimum or start-up salary as well as the economic conjuncture. As common logic dictates, optimal work effort increases with the amount of monitoring done by the employer. Quite contrary to common logic, though, we find that at the optimum employers observe and control good workers much more stringently and meticulously than poor workers. This is because under profit maximization most of the employer’s profit and surplus result from good workers and he risks losing a large amount of profit by not observing those. Managers monitor strictly more productive workers, fast learners and those starting at a higher autonomous level of monitoring, as those contribute more substantially to the firm’s profit.

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Article provided by ScientificPapers.org in its journal Journal of Knowledge Management, Economics and Information Technology.

Volume (Year): 2 (2012)
Issue (Month): 6 (December)
Pages: 3

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Handle: RePEc:spp:jkmeit:1328
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  1. Lawrence F. Katz & Alan B. Krueger, 1992. "The Effect of the Minimum Wage on the Fast-Food Industry," ILR Review, Cornell University, ILR School, vol. 46(1), pages 6-21, October.
  2. Farber, Henry S & Gibbons, Robert, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1007-47, November.
  3. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290 National Bureau of Economic Research, Inc.
  4. Kahn, Lawrence M, 1978. "The Returns to Job Search: A Test of Two Models," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 496-503, November.
  5. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 457-75, July.
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  7. Barzel, Yoram, 1987. "The Entrepreneur's Reward for Self-policing," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 103-16, January.
  8. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  9. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  10. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February.
  11. van den Berg, Gerard J, 1992. "A Structural Dynamic Analysis of Job Turnover and the Costs Associated with Moving to Another Job," Economic Journal, Royal Economic Society, vol. 102(414), pages 1116-33, September.
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