Which theory explains the fact that some firms may choose to pay their employees more than they would normally earn?

Question

Quizplus · Accepted Answer

The theory of efficiency wages explains that some firms may choose to pay their employees more than they would normally earn in order to increase productivity and reduce turnover. By paying higher wages, firms can attract and retain more skilled workers who are more committed to the firm's success. This can result in higher productivity, lower training costs, and reduced absenteeism. The other options (human capital theory, signalling theory, and the efficient market hypothesis) do not specifically address why firms might choose to pay their employees more than market wages.

Which Theory Explains the Fact That Some Firms May Choose