Which of the following is a solution to the problem of moral hazard in the labor market?
A) The provision of equilibrium wages that clear the labor market
B) The provision of wages adjusted for changes in the price level
C) The provision of efficiency wages
D) The provision of minimum wages

Question

Quizplus · Accepted Answer

The provision of efficiency wages can help solve the problem of moral hazard in the labor market by incentivizing employees to work harder and perform better. Efficiency wages are higher than equilibrium wages, which encourages workers to put in more effort and be more productive in order to keep their jobs. This reduces the risk of moral hazard, where workers shirk their responsibilities or behave unethically because they feel insulated from the consequences of their actions. Minimum wages, while they may help alleviate poverty, do not directly address the issue of moral hazard. Equilibrium wages and wages adjusted for changes in the price level are important considerations in the labor market, but do not necessarily solve the problem of moral hazard.

Which of the Following Is a Solution to the Problem