... be too costly for a firm to constantly monitor employees and may be demoralising for employees at work. A non-shirking wage rate is derived that is optimal in eliminating shirking. The wage is positively dependant on: lower the involuntary unemployment, higher the unemployment benefits, lower probability of shirking detection. Since higher unemployment benefits positively influence the non-shirking wage, such benefits increase unemployment! Turnover model recognises that it is costly for firm to search, interview, train, contract etc of a new employee. The aim is to minimise on labour turnover costs such that to mitigate employees quitting for alternative jobs. This wage is likely to be above clearing wage hence involuntary unemployment. Even if all firms offer above mkt clearing wage, employee will incur a spell of unemployment until re-employed by another firm at the existing wage thus employee is discouraged from shirking. Firms may adopt above mkt clearing wage to economise ...

See this essay or coursework document in full right now