Labor Economics
7th Edition
ISBN: 9780078021886
Author: George J Borjas
Publisher: McGraw-Hill Education
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Question
Chapter 11, Problem 1RQ
To determine
Identify the factors that determine whether a firm offers a piece-rate or a time-rate compensation system.
Expert Solution & Answer
Explanation of Solution
Under the time rate pay system, workers depends only on the number of hours the worker spends at the job and has nothing to do with the number of units they produce. That means, workers are given compensation according to the number of hours worked by them. Hence, the number of working hours is taken into the account while determine the compensation in time rate system. The firms will choose a time rate pay system, if it is cheap to monitor the working hours of the workers.
On the other hand, a piece rate pay system compensates the worker according to some measure of worker’s output. That means, the workers are given compensation according to the number of units of output produced by them. The produced output by the workers is taken into the account while determining the compensation. The firms will choose a piece rate pay system, if it is cheap to monitor the output of the workers.
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