Question

it has been asserted that moral hazard may lead to wage differences in relatively similar labor markets. If your organization or other organization you knew faces moral hazard, what do you think the solution would be to minimize the effect of wage inequality? What kind of lessons or information should the company you chose obtain from the labor market to deal with this problem? How do you think the existence of wage differentials affect employees, the organization you identified, and the economy at large? Please discuss your answers

Answer 1

moral hazard create wage ineuality and risk in the labour market,so if entitlement to Unemployment Insurance benefits must be earned with employment ,generous UI is an additional benefit to working ,so,by itself,it promotes job creation.if individuals are risk neutral,then there is a UI contribution scheme that eliminates any effect of UI on employment decisions .in this situation social insurance increases the welfare of workers by providing them protection against income risk.to be clear the findings implies that wage inequality in the labour market lead to lower transitional GDP per capita growth.increases in the level of income inequality have a negative long run effect on the level of GDP per capita