Unemployment and Maximizing Income

According to economist Benjamin Ward if you assume a homo oeconomicus, who wants to maximize his income, and that workers get not only a standard salary, but a bit more/less if the company makes a profit/loss, you have the problem that if there's high demand and the company makes a profit, if it takes on additional workers the profit has to be shared by more people. The other way around, if the demand is low and the company is operating at a loss, it would be logical to take on more workers to share the loss among more people. So this incentive is very counter-productive. Coincidentally the Yugoslavian economy consistently had problems with high unemployment. Is there a causal relationship? How large is the practical impact of the problem described above?

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  • Julian Krick
    published this page in Ask Prof. Wolff 2017-08-21 19:39:19 -0400