Under a Tournament Pay Scheme, the Pay Gap Between a Few

question 77

Multiple Choice

Under a tournament pay scheme, the pay gap between a few "winners" (those who receive big promotions) and other employees exceeds the productivity differences between these two groups. The reason firms might use such a scheme is that they

• A) overestimate the productivity of those who receive big promotions and inadvertently pay them "too much."
• B) gain tax advantages by paying a few workers large salaries and using fringe benefits to compensate the rest of the employees.
• C) hope to raise the productivity of those who receive big promotions because marginal productivity adjusts to equal wages.
• D) hope to raise the productivity of all other workers, who will work harder trying to gain a big promotion.

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Definitions:

Net Investment Income

The profit gained from investments after subtracting related expenses such as interest, taxes, and fees, indicating the actual earnings from investment activities.

Net Unilateral Transfers

Financial transfers made by a country without expecting or receiving anything in return, often in the form of aid or remittances.

Balance On Capital Account

A measurement of the financial transactions that cause a change in the ownership of assets between residents and non-residents.

Current Account

A component of a country's balance of payments, relating to the trade balance, net primary income or factor income (earnings on foreign investments minus payments made to foreign investors) and net cash transfers, that has direct impact on currency exchange rates.