An efficiency wage is an above-market wage that spurs greater work effort and gives the firm more profits because of lower wage costs per unit of output.

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An efficiency wage is a wage that is higher than the market wage and is paid to workers in order to increase their productivity. This is because a higher wage gives workers an incentive to work harder and produce more output. As a result, the firm can produce more output with the same number of workers, which lowers its wage costs per unit of output.

An Efficiency Wage Is an Above-Market Wage That Spurs Greater