The theory of "efficiency wages" suggests that a pool of involuntarily unemployed workers

Question

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The theory of efficiency wages suggests that a pool of involuntary unemployed workers provides an incentive for employed workers to work hard so they can avoid being laid off because the employers want to retain their most productive workers. This increases overall productivity and efficiency in the firm. Option A and E are incorrect as they do not address the relevance of the pool of involuntary unemployed workers. Option B is incorrect as it assumes that all unemployed workers have failed to meet productivity standards, which is not necessarily true. Option D is incorrect as the theory of efficiency wages implies that wages are constantly being negotiated based on the performance of workers.

The Theory of "Efficiency Wages" Suggests That a Pool of Involuntarily