Efficiency wage theory suggests that firms may hold wages ________ the market clearing rate because they believe that the productivity of workers ________ with the wage rate.

Question

Quizplus · Accepted Answer

According to efficiency wage theory, firms may offer wages above the market clearing rate in order to motivate their workers to be more productive. This is because workers who are paid higher wages may feel more valued by their employer and/or experience less financial stress, which can lead to increased motivation and job satisfaction. Additionally, higher wages may attract higher quality workers who are more likely to be productive. Therefore, the correct answer is (A) above; increases.

Efficiency Wage Theory Suggests That Firms May Hold Wages ________