Final answer:
The efficiency wage theory suggests that better-paid workers are more productive, as they value their higher wages and are motivated to retain their jobs, leading to increased loyalty and reduced turnover for employers.
Step-by-step explanation:
The concept that wages affect worker productivity is called the efficiency wage theory. This theory suggests that by paying workers more than the market rate, employers can increase individual and group productivity. Higher wages motivate employees to work harder and remain loyal to the employer since they would face a pay cut if they lost their job, thus fostering a more productive workforce.
Employers recognize that higher wages can reduce the need for hiring and training new employees, thereby saving on these costs. Furthermore, paying above the market rate helps retain well-motivated employees, which is beneficial for the employers in the long run. This approach also aligns with the broader perspective that long-term productivity per hour is a crucial determinant of average wage levels in an economy.