XECO 212 WK 3 Discussion Questions (DQ) 1 - 8057

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A firm's wage policy is of prime importance as it directly affects the income distribution in an economy. The labor market equilibrium is the condition at which the wages, firms are willing to offer namely the demand wage, is equal to the wage that the workers need to be paid. In order to maximize profits, firms should choose the level of employment for which the marginal product of labor equals the real value of wage paid, which is the real product wage. As per the labor market equilibrium, all workers in a firm are paid a wage equal to the market wage. In every firm, there are some workers who make more money than the others. This can be attributed to the fact that workers, besides earning their market wage, also get incentives for their good performance at work. In other words, workers who perform better at the job earn more than the others, as they receive monetary incentives for their good performance. Another reason for the difference in pay could be due to better skills in terms of educational qualifications and experience. Hence, workers of a particular type should receive the same wage, which is the market wage, and this wage should be supplemented by incentives based on their performance.

 

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A firm's wage policy is of prime importance as it directly affects the income distribution in an economy. The labor market equilibrium is the condition at which the wages, firms are willing to offer n