The efficiency wage is:
A) lower than the market-clearing wage, to penalize shirking.
B) higher than the market-clearing wage, to penalize shirking.
C) lower than the market-clearing wage, to allow managers the resources to monitor shirking.
D) higher than the market-clearing wage, to reward workers for informing on others who shirk.
E) lower than the market-clearing wage, because of shirking done by managers.

Question

Quizplus · Accepted Answer

The efficiency wage theory suggests that a higher than market-clearing wage can improve worker productivity by providing an incentive for workers to stay with the company, work harder, and shirk less. This can lead to cost savings for the firm in the long run. However, if the wage is too high, it can lead to decreased profits and reduced incentives for workers to improve productivity. Therefore, a slightly higher than market-clearing wage is considered the optimal efficiency wage.

The Efficiency Wage Is