If firms are paying efficiency wages, they
A)may be reluctant to increase nominal wages when aggregate demand increases.
B)are highly vulnerable to import competition.
C)may be targeted for takeover by firms paying market wages.
D)may be reluctant to cut wages when aggregate demand declines.

Question

Quizplus · Accepted Answer

Efficiency wages are above-market wages paid to increase worker productivity and loyalty, so firms may be reluctant to cut them even when demand declines to maintain these benefits.

If Firms Are Paying Efficiency Wages, They