What is the essence of efficiency wages?
A) Wages are determined by a bargaining process between the worker and the firm.
B) Wages may affect the productivity levels.
C) Wages are always paid according to the worker's marginal revenue product.
D) Wages are paid such that the allocation of labour is efficient.

Question

Quizplus · Accepted Answer

Efficiency wages are based on the idea that paying workers more than the market-clearing wage can lead to increased productivity. This can happen through various mechanisms, such as increasing worker effort, reducing turnover, or attracting higher-quality applicants.

What Is the Essence of Efficiency Wages