Why, in the Labor Market, Are Contracts Often Designed to Include

question 69

Multiple Choice

Why, in the labor market, are contracts often designed to include a variable salary component that is tied to some measure of performance?

• A) Such contracts are considered the fairest to employees under fair labor standard laws.
• B) Most people are risk-averse and thus variability in their compensation leads to higher total utility.
• C) Firms use such contracts to differentiate between high- and low-quality workers.
• D) These contracts tend to attract employees with the lowest probability of switching jobs.

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Definitions:

Hostile Aggression

Aggressive behavior stemming from feelings of anger and aimed at inflicting pain or injury.

Instrumental Aggression

Aggressive behavior that is intentional and planned, used as a means to achieve a specific goal, distinct from impulsive or emotional aggression.

Aggressor

An aggressor is an individual or country that initiates an attack, conflict, or hostile action towards another.

Reactive

Responding to events or stimuli rather than initiating actions proactively; typically characterized by responses to environmental or situational factors.