Your payoff from hiring a worker is the difference between the revenue increase from hiring a worker and the wage you pay that worker.
If you accept a job, your payoff is the wage you receive. If you do not accept a job, your payoff is the value from staying home.
Paying an $8 wage for a job that increases firm revenues by $13:
Firm Payoff | = | Revenue Increase | – | Wage |
---|---|---|---|---|
$5 | = | $13 | – | $8 |
Worker Payoff | = | Wage | ||
$8 | = | $8 |
A worker who values staying at home at $6 and does not accept a job:
Worker Payoff | = | Value of staying home |
---|---|---|
$6 | = | $6 |