The Break of the Linkage between Monetary Incentives and Effort

23 Pages Posted: 27 Jun 2016 Last revised: 23 Jul 2016

See all articles by Miki Malul

Miki Malul

Ben Gurion University of the Negev

Mosi Rosenboim

Ben-Gurion University of the Negev

Daniel Shapira

Ben-Gurion University of the Negev

Date Written: June 27, 2016

Abstract

The average worker in the US needs to work more than a year to earn his or her CEO’s daily wage. The well-accepted justification among economists for these huge wage gaps is the necessity to achieve economic efficiency, in terms of efficient allocation in the labor market and incentivizing employees to put forth maximum effort. Building on the idea that the level of effort any individual can invest is bounded, we provide a compact mathematical proof that challenges the well-accepted economic notion that extremely high gaps in net wages and wealth distribution are the lesser evil because they ensure economic efficiency. We conclude suggesting an economically efficient solution that does not limit gross wages, but still reduces socioeconomic inequalities.

Keywords: inequality, CEO compensation, tax

JEL Classification: J3

Suggested Citation

Malul, Miki and Rosenboim, Mosi and Shapira, Daniel, The Break of the Linkage between Monetary Incentives and Effort (June 27, 2016). Available at SSRN: https://ssrn.com/abstract=2801228 or http://dx.doi.org/10.2139/ssrn.2801228

Miki Malul (Contact Author)

Ben Gurion University of the Negev ( email )

Israel

Mosi Rosenboim

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheva, 84105
Israel

Daniel Shapira

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheba 84105, 84105
Israel

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
81
Abstract Views
512
Rank
547,134
PlumX Metrics