Question

Companies make more profit if they pay wages that are higher than the typical rate in the market.

a. This is always True.
b. This is always False.
c. This is True only in the car industry.
d. This is sometimes True and sometimes False.

Answer 1

Efficiency wage theory states that paying employees more than the market rate can lead to higher productivity and reduced costs for the employer.

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.