Which of the following best describes the problem of moral hazard in the labor market? a....

Which of the following best describes the problem of moral hazard in the labor market?

	a.	Earning profits by hiring employees is exploitation and is unethical.
	b.	Honesty isn’t always the best policy – morality can be hazardous.
	c.	Once workers are hired, employers want to motivate those workers to work hard and be productive even though the workers would likely rather slack off.
	d.	Potential employees have no incentive to reveal their true abilities or skill levels when applying for a job opening, and employers would like to know this information.

Solutions

Expert Solution

Option D is correct

When selecting an individual for work, employers do not know who are the high ability individuals and who are the low ability individuals. however this information is available to the individuals and this implies that there is asymmetric information. Moral hazard exists because potential employees have hidden abilities and employers have to use specific techniques to segregate the two individuals types.

Rahul Sunny answered 1 year ago

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