In the Labor Market, Contracts Are Often Designed to Include

Multiple Choice

In the labor market, contracts are often designed to include a variable salary component that is tied to some measure of performance. Why?

A) Such contracts provide workers with the incentive to work hard.
B) Most people are risk-loving and thus variability in their compensation leads to higher total utility.
C) Labor unions demand a variable salary component.
D) The variable component reduces wages paid by firms.