By paying a higher-than-market wage, a firm can avoid the problem of

Question

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By paying a higher-than-market wage, a firm can attract a larger pool of candidates, many of whom may have higher levels of skill and experience. However, this can also attract candidates who may not be as qualified, which is an example of adverse selection. By offering a higher wage, the firm can signal to potential employees that they are serious about hiring top talent and may screen out less qualified applicants.

By Paying a Higher-Than-Market Wage, a Firm Can Avoid the Problem