If firms pay employees an efficiency wage, _____.

Question

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An efficiency wage is a higher-than-market wage paid by firms to their employees in order to increase their productivity and reduce shirking on the job. This can lead to a decrease in absenteeism as employees are incentivized to show up to work and perform well in order to maintain their higher wage. However, it may also lead to higher turnover as workers may leave in search of similarly high wages elsewhere. Training costs may also increase if employees require additional training to increase their productivity. Shirking on the job is less likely to occur under an efficiency wage as employees have a stronger incentive to perform well. There is also no indication that a shortage of employees would be likely to occur as a result of an efficiency wage.

If Firms Pay Employees an Efficiency Wage, _____