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The Choice of Wage Rate and Incentive for Labour Productivity Maximization


  • David Iheke Okorie

    (Xiamen University)


This paper utilizes the computable general equilibrium model to capture the labour productivity of workers and establishes the optimal wage rate and incentive level that maximize labour productivity for the firm. Over time, the household accepts these wage rates and incentives from the firm and maximizes her utility. As such, equilibrium is maintained in the economy. The market price is sticky in the short run, and thus, the dynamic changes in the preference of the household for leisure and labour hour distort the equilibrium price level. Restoring equilibrium entails adjusting the wage rate level in our model. In addition, our model shows that the household demands for more consumption goods and leisure as earnings increase.

Suggested Citation

  • David Iheke Okorie, 2019. "The Choice of Wage Rate and Incentive for Labour Productivity Maximization," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 62(2), pages 279-290, June.
  • Handle: RePEc:spr:ijlaec:v:62:y:2019:i:2:d:10.1007_s41027-019-00177-6
    DOI: 10.1007/s41027-019-00177-6

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    References listed on IDEAS

    1. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2013. "Team Incentives: Evidence From A Firm Level Experiment," Journal of the European Economic Association, European Economic Association, vol. 11(5), pages 1079-1114, October.
    2. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115(1), pages 69-102.
    3. Bruce Shearer, 2004. "Piece Rates, Fixed Wages and Incentives: Evidence from a Field Experiment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 513-534.
    4. Bandiera, Oriana & Barankay, Iwan & Rasul, Imran, 2013. "Team incentives: evidence from a firm level," LSE Research Online Documents on Economics 53141, London School of Economics and Political Science, LSE Library.
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    Cited by:

    1. David Iheke Okorie & Boqiang Lin, 2024. "Global shocks and fiscal stimulus: a tale of an oil-dependent-exporting country," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-37, December.

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    More about this item


    Labour productivity; Wage rates; Incentives; Maximization;
    All these keywords.

    JEL classification:

    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives


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