Most real estate agents are paid entirely by commission. Commissions are usually paid by the person whose property has been sold, and it is normally calculated as a percentage of the sales price. Roughly half of the commission goes to the agent and half to the broker for whom the agent works.

a) What is the likely connection between this compensation scheme and the fact that brokers never lay off their agents?

b) Some real estate brokers split the commission revenues generated by each sale with the responsible agent, as described above. Other brokers, however, require their agents to pay them (the brokers) money upfront, and then allow the agents to keep the entire commission from each sale they make. Which agents would you predict to have the larger volume of sales, those who split all commissions with their employer or those who pay an upfront fee to their employer and then keep the entire commission?

Labor Economics

ECN 451