A firm might choose to pay its employees a wage higher than that which would clear the market because:
A)the higher wage raises the opportunity cost of shirking
B)the higher wage may shift the labor demand curve to the left
C)the firm will have higher turnover,allowing new workers to invigorate the work place
D)the higher wage solves the free-rider problem

Question

Quizplus · Accepted Answer

By paying a higher wage, the firm is increasing the opportunity cost of shirking (not working hard or not showing up for work), as the employee would be giving up more in terms of wages forgone. This incentivizes employees to work harder and be more productive, ultimately benefiting the firm.

A Firm Might Choose to Pay Its Employees a Wage