Suppose new electronic devices make it easier to monitor the effort levels of workers. If some shirking is still possible in the efficiency wage model, what happens to the efficiency wage?
A) Declines, but remains above the market-clearing wage
B) Declines, and falls below the market-clearing wage
C) Increases
D) Does not change

Question

Quizplus · Accepted Answer

With the ability to monitor effort levels, it becomes more difficult for workers to shirk. As a result, employers may feel they can offer a slightly lower efficiency wage and still motivate workers to perform at their highest level. However, the efficiency wage would likely remain above the market-clearing wage in order to retain the benefits of reduced turnover, increased productivity, and improved morale that come with paying above what workers could earn elsewhere.

Suppose New Electronic Devices Make It Easier to Monitor the Effort