Figure 17-6 Figure 17-6 Shows Two Different Compensation Schemes

question 60

Multiple Choice

Figure 17-6 Figure 17-6 shows two different compensation schemes for the Safelite Glass Corporation, an installer of auto glass windshields. Under Scheme I, the firm pays a consistent wage of $80 per day based on an 8-hour workday. Qmin represents the cut-off point under the hourly-wage system: if a worker installed fewer than Qmin windshields, the worker got fired. Scheme II represents a piece-rate scheme with an earnings floor: no worker would get less than $80 per day (for an 8-hour workday) and would have to produce at least Qmin. For any output level beyond Q* the worker earned an additional $20 for each unit produced.
-Refer to Figure 17-6. Suppose Qmin = 2 windshields and Q* = 5 windshields. Under Scheme II, a worker has to install Q* windshields before she earns an additional $20 per windshield installed. What is a potential problem with this scheme?

• A) Workers might be more concerned with increasing output beyond Q* and less concerned with the quality of their work.
• B) Any increase in output between Qmin and Q* benefits the employer only.
• C) It violates labor laws because workers are not compensated for output between Qmin and Q*.
• D) Workers have no incentive to produce output to between Qmin and Q*.

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Definitions:

Health Care Bill

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Legislation during the Reagan-Clinton era that removed regulations on many industries, including finance and air travel.