Question

Many companies that pay workers an hourly wage require some minimum level of acceptable output. Suppose a company that has been using this system decides to switch to a​ piece-rate system under which workers are compensated on the basis of how much output they produce but where they are also free to choose how much to produce.

Is it likely that workers under a​ piece-rate system will end up choosing to produce less than the minimum output required under the hourly wage​ system? Briefly explain.

Switching to the​ piece-rate system​ (compared to the minimum output required under the hourly wage​ system) likely

A.

will not result in workers producing less output because more productive workers will be

retained.

B.

will result in workers producing less output because more productive workers will be

attracted.

C.

will result in workers producing less output because more productive workers will quit and take jobs elsewhere.

D.

will result in workers producing more output because they will incur less risk.

E.

will not result in workers producing less output because they will have less incentive to produce beyond the minimum level previously required.

Answer 1

Assuming that all the workers have the same abilities, the harder you work, the more you earn.

In such a case, compared to an hourly wage compensation system, under the piece rate system output will be higher because the workers would have an incentive to work more.

Thus, switching to the piece rate system will not result in workers producing less output because more productive workers will be retained.

Ans. (a)