According to efficiency wage theory,a firm that raises wages by one percent will actually lower the labor cost per unit of output if the wage increase
A)raises output per worker by more than one percent.
B)raises output per worker by less than one percent.
C)does not change output per worker.
D)lowers output per worker by less than one percent.

Question

Quizplus · Accepted Answer

Efficiency wage theory suggests that a wage increase can lead to increased worker productivity, which in turn can offset the higher labor costs per worker. If the wage increase leads to a more than proportionate increase in output per worker, then the labor cost per unit of output will actually decrease, making it a rational decision for the firm to raise wages.

According to Efficiency Wage Theory,a Firm That Raises Wages by One