Figure 19-1

-Refer to Figure 19-1.Suppose the local labor market was in equilibrium to begin with but then the largest local employer decided to change its compensation scheme to $10 as shown.Which of the following compensation schemes could the graph be illustrating?

Question

Figure 19-1
 
-Refer to Figure 19-1.Suppose the local labor market was in equilibrium to begin with but then the largest local employer decided to change its compensation scheme to $10 as shown.Which of the following compensation schemes could the graph be illustrating?

Quizplus · Accepted Answer

An increase in wages to $10 above the equilibrium wage rate could be an example of an efficiency wage, where employers pay above the market clearing wage in order to motivate workers to increase productivity or reduce turnover. This would result in a decrease in the quantity demanded of labor and an increase in the quantity supplied of labor, as shown in the graph. The other options (discrimination, compensating differential, and superstar phenomenon) do not fit this scenario.

Figure 19-1 -Refer to Figure 19-1.Suppose the Local Labor Market Was in Labor