Suppose new electronic devices make it easier to monitor the effort levels of workers. What happens to the NSC curve in the efficiency wage model?
A) Shifts upward
B) Shifts downward
C) Remains the same
D) The NSC curve remains the same, and the labor supply curve shifts leftward because shirking workers will leave the labor force.

Question

Quizplus · Accepted Answer

With the introduction of new electronic devices that facilitate the monitoring of workers' effort levels, employers can more easily detect and address shirking. This reduces the need for efficiency wages (higher wages paid to encourage greater worker effort and reduce shirking) because monitoring becomes more effective and less costly. As a result, the no-shirking condition (NSC) curve, which represents the minimum wage at which workers will not shirk given the level of monitoring, shifts downward. This is because it becomes cheaper for firms to ensure workers are not shirking due to the improved monitoring technology.

Suppose New Electronic Devices Make It Easier to Monitor the Effort