Four employers have justified their actions as follows. Whose logic is not consistent with the logic of efficiency wage theory?
A)Jay develops a new assembly line technology that limits the amount of shirking workers can do, so he reduces what he pays his employees so as to make it closer to the equilibrium wage.
B)Kay pays her workers less than the equilibrium wage so they won't have the time or money to look for work somewhere else.
C)Ray pays his workers in a developing country more than the going wage hoping that they will get a better diet and so be more productive.
D)None of the above is consistent with the logic of efficiency wage theory.

Question

Quizplus · Accepted Answer

Kay's logic is not consistent with the logic of efficiency wage theory. Efficiency wage theory suggests that paying workers more than the equilibrium wage can lead to increased productivity, while paying them below it can lead to decreased productivity due to the negative effect on worker morale, health, and turnover. Kay's strategy of paying workers less than the equilibrium wage to keep them from leaving does not consider the potential negative effects on worker productivity and efficiency.

Four Employers Have Justified Their Actions as Follows