An eﬃciency wage is
A) a wage payment necessary to compensate workers for risk of injury on the job.
B) a "wage" that contains a proﬁt-sharing component as well as traditional hourly pay.
C) an above-market wage that minimizes a ﬁrm's labor cost per unit of output.
D) a wage that automatically rises with the national index of labor productivity.

Question

Quizplus · Accepted Answer

An efficiency wage is an above-market wage that a firm pays to its employees in order to reduce labor turnover, improve labor productivity, and lower labor costs per unit of output. The idea is that by paying a higher wage, a firm can attract and retain more qualified and motivated workers who are willing to work harder and stay longer, thereby increasing the firm's productivity and reducing the need for frequent hiring and training of new workers. This can ultimately lead to lower labor costs per unit of output, despite the higher wage rate.

An Eﬃciency Wage Is