How does the theory of efficiency wages explain above-equilibrium wages
A)Employers are forced to pay higher wages in efficient markets.
B)Employers give their workers a higher wage in the hope that it will lead to increased productivity.
C)Workers get a raise in wage when they prove they are increasing their productivity.
D)Workers demand higher wages to compensate for poor fringe benefits.

Question

Quizplus · Accepted Answer

The theory of efficiency wages states that employers pay their workers more than the equilibrium wage because it can lead to increased productivity. By offering above-market wages, employers hope to attract higher-quality workers and motivate their current workforce to perform better. This can ultimately reduce turnover and increase profits, offsetting the higher labor costs.

How Does the Theory of Efficiency Wages Explain Above-Equilibrium Wages