What does the theory of efficiency wages explain?
A) why setting wages at the equilibrium level may increase unemployment
B) why it may be in the best interest of firms to offer wages that are above the equilibrium level
C) why the most efficient way to pay workers is to pay them according to their skills
D) why it is efficient for firms to set wages at the equilibrium level

Question

Quizplus · Accepted Answer

The theory of efficiency wages explains why it may be in the best interest of firms to offer wages that are above the equilibrium level. This is because higher wages can increase worker productivity and reduce turnover, ultimately leading to lower overall costs for the firm.

What Does the Theory of Efficiency Wages Explain