The theory of efficiency wages is that
A) above-equilibrium wages increase worker productivity.
B) workers with higher levels of education earn more than workers with lower levels of education.
C) workers signal their high ability to potential employers by completing formal years of schooling.
D) union workers earn more than nonunion workers.

Question

Quizplus · Accepted Answer

Efficiency wage theory argues that paying above-market wages can increase worker productivity and decrease turnover, resulting in cost savings for the firm in the long run. This is because higher wages incentivize workers to put in more effort, reduce shirking and absenteeism, and improve morale.

The Theory of Efficiency Wages Is That