Firms pay an efficiency wage because:
A) it reduces the risk of losing the best workers.
B) it is required by law.
C) they don't have to offer health insurance if they pay efficiency wages.
D) it reduces the employee's income tax liability.

Question

Quizplus · Accepted Answer

Firms pay an efficiency wage because it reduces the risk of losing the best workers. Efficiency wages are higher than the prevailing market wage, and this attracts high-skilled workers who are more productive and less likely to quit their jobs. By paying an efficiency wage, firms can retain their best workers who are valuable to the company and contribute to its success. Furthermore, efficiency wages can improve employee morale and commitment, leading to higher productivity and profits for the firm.

Firms Pay an Efficiency Wage Because