ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the marginal benefit of increased efficiency is equal to the marginal cost of higher wages.
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nominal wages are inflexible.
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disequilibrium in the labor market exists.
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all of the above.
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Detailed explanation-1: -Efficiency wages refer to employers paying higher than the minimum wage to retain skilled workers, increase productivity, or ensure loyalty. Efficiency wage theory helps explain why firms are reluctant to cut wages even in the face of increased competition or during economic downturns.
Detailed explanation-2: -Efficiency Wage theory can be split into four ways that paying a higher wage can improve your organisations production. These are: decreased shirking, increased retention, higher quality recruits, and healthier employees.
Detailed explanation-3: -Efficiency wages theory is used by many firms which believe that remuneration has the power to affect employees positively. Hence, they pay more to recruit and retain the best. This, they believe, will increase profits in the long run. Pay does matter, but only to an extent.
Detailed explanation-4: -Efficiency wages contribute to structural unemployment and the natural rate of unemployment. Efficiency wages are the wages that are paid out by the firm where individuals are paid higher wages than the market equilibrium wages to increase the morale and productivity of the workers.