Question

In the labor discipline model, and increase in unemployment will: A. increase workers’ employment rents and increase workers’ effort level. B. decrease workers’ employment rents and increase workers’ effort level. C. increase workers’ employment rents and decrease workers’ effort level. D. decrease workers’ employment rents and decrease workers’ effort level.

Answer 1

Answer: Option (D) is correct.

Explanation:

In the labor discipline model, an increase in unemployment will decrease workers’ employment rents and decrease workers’ effort level.

An increase in the unemployment, will shift the bargaining power towards employers. So, they are taking advantage of this situation by reducing the wage rate because they know that workers don't have much options of employment.

Now, employers giving lower wage to the workers, as a result this will discourage workers for giving their full effort to the work.