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WORLD OF WORK
1. Health Care Reform and “Job Lock”?
2. End of Teacher Tenure?
3. Economics of Tipping
4. The Ford Motor Company’s $5 Per Day Wage
GLOBAL PERSPECTIVE
1. Chief Executive Officer Compensation
LEARNING OBJECTIVES
After learning the material in Chapter 7 of Contemporary Labor Economics, the student should be able to:
1. identify which benefits are legally required benefits and which are voluntary
2. describe the growth and variation in fringe benefits by industry and occupation
3. explain how the wage-fringe trade-off can be represented by indifference curves and isoprofit
curves; graphically depict the wage-fringe optimum
4. show, with reference to indifference curves and isoprofit curves, why there has been growth in
fringe benefits relative to wages
5. describe the principal-agent problem as it applies to the employer-employee relationship
6. explain the advantages and disadvantages associated with time rate wages, piece rate wages,
commissions and royalties
7. use graphical analysis to explain why salaried workers may have an incentive to shirk and how
the firm’s compensation plan can be structured to minimize this activity
8. explain, with reference to the principal-agent and free-rider problems, some of the benefits and
difficulties of implementing an effective bonus, profit-sharing, or equity compensation plan.
9. explain how high pay for senior executives may improve efficiency
10. explain why a firm may choose to pay its workers more than the market-clearing wage
11. describe the shirking, nutritional, and labor-turnover models of efficiency wages
12. explain why the payment of efficiency wages may result in nonclearing labor markets
13. refine the definition of efficiency to include compensation issues
3. Indifference curves would likely be flatter with no change in the slope of the isoprofit curve. The
likely effect would be to reduce the proportion of total compensation paid as fringe benefits.
5. a. Income variability; difficulty of attributing output to a single individual; other goals may
suffer (quality, for example, or team cooperation).
b. Free-riding.
2
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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Boone spent his time in farming, working at the forge, and
hunting; but he liked hunting best, and was never so happy as in the
thick forest alone with his gun. He often went on long hunting trips,
returning with bear’s meat, venison, bear’s oil, and furs, the last to
be sold for other things needed at home.
John Sevier, too, had more honors than those of a noble soldier.
In front of the courthouse at Knoxville is a plain stone monument
raised in his memory (Fig. 64), and down a side street is an old
dwelling, said to be an early statehouse of the commonwealth which
is still associated with his name. In 1785 the state of “Franklin” was
organized and named in honor of the illustrious Benjamin; but North
Carolina, being heartily opposed to the whole proceeding, put an end
to it without delay. Sevier, as governor of the would-be state, was
imprisoned, but escaped, to the delight of his own people, who were
always loyal to him. They sent him to Congress in a few years and in
1796 made him the first governor of Tennessee. He enjoyed many
honors until his death in 1815, which came soon after that of his
more quiet friend, James Robertson. Both of these wilderness men
had much to do with planting the American flag between the
Appalachian mountains and the Mississippi river.
CHAPTER XIV
CITIES OF THE SOUTHERN MOUNTAINS