Paying efficiency wages helps firms reduce the problem of moral hazard by:
A) generating additional profits that can be used to improve working conditions.
B) matching the wages each worker is paid to the number of units of output each worker produces.
C) encouraging unsupervised workers to maintain a high level of productivity.
D) providing an incentive for the best-qualified workers to remain with the firm.

Question

Quizplus · Accepted Answer

Paying efficiency wages provides an incentive for workers to maintain a high level of productivity, even in the absence of supervision. This is because workers who are paid above-market wages feel a greater sense of obligation to perform at a high level, as they perceive their compensation as a reward for doing so. By reducing the likelihood of shirking and other forms of moral hazard, firms can benefit from higher levels of productivity and profitability. The other choices are not necessarily untrue, but they do not directly address the problem of moral hazard in the same way that paying efficiency wages does.

Paying Efficiency Wages Helps Firms Reduce the Problem of Moral