Suppose a firm decides to raise pay as a way to reduce worker turnover.The resulting pay differential:
A)is a transitional differential
B)will reduce labor supply to the firm
C)will normally be offset by other pay differentials,leaving the policy ineffective
D)is an equilibrium differential

Question

Quizplus · Accepted Answer

The pay differential resulting from the firm's decision to raise pay as a way to reduce worker turnover is an equilibrium differential. This means that it is the result of the market forces of supply and demand for labor. As the firm increases pay, it will attract more workers to apply for the available jobs, which will put downward pressure on the wages. Therefore, the resulting pay differential will be the level at which the supply of labor matches the demand for labor in the firm. This type of differential is sustainable in the long term because it is based on the market conditions rather than a short-term policy action. Therefore, it is the most effective choice for reducing worker turnover.

Suppose a Firm Decides to Raise Pay as a Way