Final answer:
Efficiency wage theory suggests that paying employees more than market conditions might dictate can motivate them to work harder and stay with the current employer. This is because employees recognize that losing their current jobs would result in a decline in salary. Additionally, employers prefer to pay a little extra to avoid hiring and training new workers, thereby minimizing costs and benefiting from motivated employees.
Step-by-step explanation:
Efficiency wage theory argues that workers' productivity depends on their pay, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate. One reason is that employees who receive better pay than others will be more productive because they recognize that if they were to lose their current jobs, they would suffer a decline in salary. As a result, they are motivated to work harder and to stay with the current employer. In addition, employers know that it is costly and time-consuming to hire and train new employees, so they would prefer to pay workers a little extra now rather than to lose them and have to hire and train new workers. Thus, by avoiding wage cuts, the employer minimizes costs of training and hiring new workers, and reaps the benefits of well-motivated employees.