Employers may choose to pay efficiency wages that are higher than the equilibrium wage because
A) workers will be more willing to accept monitoring by their employers.
B) the threat of unemployment will help prevent workers from shirking.
C) the higher compensation will encourage workers to take more risks.
D) higher wages will attract only the most qualified workers and thus help solve the employer's adverse selection problem 2.

Question

Quizplus · Accepted Answer

Efficiency wages are wages that are intentionally set by employers above the equilibrium wage in order to motivate employees to work harder and more diligently. This motivation can come in various forms, such as reducing shirking or reducing turnover. The most common reason employers choose to pay efficiency wages is to reduce shirking or the practice of workers performing their duties at a lower level than expected. By paying workers more than the market wage, employers are hoping to create a strong incentive for workers to work hard and avoid the threat of being fired. Furthermore, the higher wage can help to build morale and reduce turnover, leading to a more stable and productive workforce.

Employers May Choose to Pay Efficiency Wages That Are Higher