The Choice of Wage Rate and Incentives for Labour Productivity Maximization

This paper utilizes the Computable General Equilibrium (CGE) model to capture the labour productivity of workers and establishes the optimal wage rate and incentive level that maximizes labour productivity for the firm. Overtime, the household accepts these wage rates and incentives from the firm and maximizes her utility, as such equilibrium in maintained in the economy. The market price is sticky in the short-run thus, the dynamic changes in the preference of the household for leisure and labour hour distorts the equilibrium price level. Restoring equilibrium entails adjusting the wage rate level in our model. In addition, our model shows that the household demands for more consumption goods and leisure as earnings increase