1. There are several compensation schemes that employers may use to motivate workers.

A. “Pay for performance” schemes may take several forms. One is a piece rate scheme, in which there is an explicit mathematical formula that translates workers’ output into pay. (For example, a worker might be paid $5 per unit of out put he or she produces.) A second scheme awards workers a year-end bonus that depends on their annual performance review. Question: All else equal, would Caucasian or African-American workers have a stronger preference for the piece rate relative to the bonus system? Why?

B. Women are more likely than men to hold jobs that pay workers a piece rate, but less likely to hold jobs that promise workers raises if they perform well. Why might that be? (Hint: This is not about discrimination.)

C. Why might it be more problematic to use a piece rate scheme to motivate a sales representative who sells computers than one who sells furniture?

D. Briefly explain how job- or industry-specific human capital (or occupational licensing, for that matter) can make employees more diligent in their jobs, even if employers do not pay efficiency wages designed to elicit greater honesty.