Monique is the newly appointed CEO of a company that manufactures external hard drives on an assembly line. Her staff has told her that the output the firm produces, given the number of workers employed, indicates that some workers may be shirking. According to efficiency wage theory, what should she do?

Question

Quizplus · Accepted Answer

Efficiency wage theory suggests that paying workers more than the equilibrium wage rate can motivate them to work harder and avoid shirking. By providing higher wages, workers will have a greater incentive to maintain their job and work efficiently, as they risk losing their higher wage if they are caught shirking. This method can increase productivity and, in the long run, lead to higher profits for the firm. Therefore, the best choice is to pay all workers more than the equilibrium wage rate.

Monique Is the Newly Appointed CEO of a Company That