Employers may pay higher than equilibrium wages to avoid moral hazard in the employment relationship by raising the cost of shirking.

Question

Quizplus · Accepted Answer

When employers pay higher than equilibrium wages, it creates a greater cost for employees who shirk or do not perform their job responsibilities. This acts as a deterrent against such behavior and reduces the risk of moral hazard in the employment relationship.

Employers May Pay Higher Than Equilibrium Wages to Avoid Moral