User:Bzhu/Sandbox

This is a section to explain fair wage-effort hypothesis in the behavioral economics

Introduction

Have you ever thought of fairness as to wage? What is fair wage for you? Generally, people tend to compare their own wage with others in similar situations. Here is a story that can introduce the concept of fair wage-effort hypothesis. Bill and Hu who are close friends work in the different factories, but they are responsible for the same kind of work. One day, they occasionally talked about how much they make. It shocked Hu due to the wage differential. Hu thought it was unfair to receive less wage for the same amount of work. As a result, he decided to work less hard. However, it is not the only case. This story reflects part of fair-wage hypothesis. Basically, if someone feels he does not receive wage he think it is fair, he will proportionately diminish his effort on work. It can be translated to e = min (w/w*, 1), where e equals effort a worker contributes to his work, w equals the actual wage, and w* equals the fair wage, and 1 is normal effort corresponding to the market-clear wage. So how to interpret e = min (w/w*, 1)? Basically,a worker will exert the lower number that represents effort in the function.