Efficiency wages cause unemployment because

Question

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Efficiency wages are wages that are above the market wage and are paid by firms to motivate workers to increase their productivity. When firms pay efficiency wages, the quantity of labor demanded is less than the quantity of labor supplied, causing unemployment. This is because the cost of hiring additional workers at the higher efficiency wage is greater than the benefit of the increased productivity. Therefore, firms will hire fewer workers than they would in a market where wages are at the market-clearing level, leading to unemployment.

Efficiency Wages Cause Unemployment Because