The efficiency wage theory states that by paying their employees more than the market-clearing wage, employers hope to

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Efficiency wage theory suggests that by paying workers more than the market-clearing wage, employers can increase employee morale, reduce turnover, and attract better quality workers, ultimately leading to higher productivity and profits. This theory assumes that paying higher wages can provide workers with the motivation to work harder, because they feel a greater sense of loyalty to the company that cares about their well-being. Therefore, it is unlikely that employers would want to reduce productivity or set up incentives for employees to shirk their duties, as this would undermine the purpose of this theory.

The Efficiency Wage Theory States That by Paying Their Employees