Final answer:
Efficiency wage theory suggests that worker productivity increases with higher compensation and is thus Option A. positively related to their effort. The higher wages lead to greater motivation, lower turnover, and reduced training costs for employers.
Step-by-step explanation:
The efficiency wage is a concept in labor economics which posits that the productivity of workers will increase if they are paid more than the current market wage. An assumption behind the efficiency wage theory is that effort is positively related to worker compensation. To be precise, the answer to the student's question is Positively' because the underlying theory suggests that workers will exert a higher level of effort if they receive compensation that is above the norm, thus increasing their productivity and providing incentives to retain their job.
Such a wage strategy benefits employers by reducing turnover costs, minimizing the expense of training new employees, and maintaining a motivated workforce, which in turn justifies the higher wage expenditure. This approach also helps in retaining employees who may otherwise become discouraged workers or contribute to frictional unemployment. The implicit contract in this scenario is that an employer pays higher wages, even in tough times, to maintain stability and productivity among employees.