According to efficiency-wage theory, paying higher wages than competitors can lower labor costs due to more efficient workers.

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Efficiency-wage theory suggests that paying higher wages than competitors can attract and retain more talented and motivated employees, which can lead to increased productivity, better quality work, and lower labor costs overall. This is because the benefits of higher wages outweigh the costs, and employees are more likely to work harder and take their jobs more seriously when they feel they are being fairly compensated. As a result, firms that follow this strategy may actually end up spending less on labor in the long run, despite paying higher wages upfront.

According to Efficiency-Wage Theory, Paying Higher Wages Than Competitors Can