An efficiency wage improves efficiency when:
A)the increase in worker effort and reduced turnover cover the cost of the higher wage.
B)it is structured so that only the most productive workers receive a higher wage.
C)capital costs are reduced enough to cover wage costs.
D)improved technology accompanies the worker training.

Question

Quizplus · Accepted Answer

An efficiency wage improves efficiency when the increase in worker effort and reduced turnover cover the cost of the higher wage. This means that the higher wage encourages workers to work harder and stay with the company longer, leading to improved efficiency and cost savings that offset the higher wage expense. Option B is incorrect because it suggests that only the most productive workers receive a higher wage, which may not necessarily improve overall efficiency. Option C is also incorrect because capital cost reductions do not necessarily lead to improved efficiency from an efficiency wage. Option D may be a helpful factor, but it is not necessary for an efficiency wage to improve efficiency.

An Efficiency Wage Improves Efficiency When