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The Choice of Wage Rate and Incentive for Labour Productivity Maximization

David Okorie ()

The Indian Journal of Labour Economics, 2019, vol. 62, issue 2, No 7, 279-290

Abstract: Abstract 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.

Keywords: Labour productivity; Wage rates; Incentives; Maximization (search for similar items in EconPapers)
JEL-codes: J28 J33 D24 O31 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s41027-019-00177-6

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Handle: RePEc:spr:ijlaec:v:62:y:2019:i:2:d:10.1007_s41027-019-00177-6