Question

Efficiency wages A. increase productivity and reduce unemployment. B. increase productivity but increase unemployment. C. decrease productivity but reduce unemployment. D. decrease productivity and increase unemployment.

Answer 1

Answer: The correct answer is "B. increase productivity but increase unemployment.".

Explanation: Efficiency salaries is a theory that says that some companies voluntarily offer salaries above the equilibrium level and this results in an increase in the productivity of their workers. As a negative issue, they can cause higher unemployment rates, since with salaries above the equilibrium salary, there is a consumer surplus. In addition, it would reduce the demand for more workers, as they have become more expensive.