By paying efficiency wages,firms contribute to higher structural unemployment because they:
A) increase the wage bill.
B) make workers more productive.
C) keep the wage below the equilibrium level.
D) keep the wage above the equilibrium level.

Question

Quizplus · Accepted Answer

By paying efficiency wages, firms keep the wage above the equilibrium level, which leads to a situation where there is a surplus of labor, i.e. unemployment. This can be because workers are more productive and the firm can afford to pay them a higher wage, or the firm may be using the higher wage to attract better quality workers. However, in the long run, it can lead to higher structural unemployment as the market adjusts to the higher wage level.

By Paying Efficiency Wages,firms Contribute to Higher Structural Unemployment Because