Question

4 Reasons why firms might pay efficiency wages:

A) Increase worker productivity
B) Reduce employee turnover
C) Attract high-skilled workers
D) All of the above

Answer 1

Efficiency wage theory argues that firms might pay efficiency wages to increase worker productivity, reduce employee turnover, and attract high-skilled workers. Hence, D) All of the above is correct.

Step-by-step explanation:

Efficiency wage theory argues that workers' productivity depends on their pay. Firms might pay efficiency wages for several reasons:

1. Increase worker productivity: Employees who receive better pay than others will be more motivated to work harder.
2. Reduce employee turnover: Higher wages incentivize employees to stay with the current employer, reducing the costs of hiring and training new workers.
3. Attract high-skilled workers: Offering higher wages can attract more skilled workers who can contribute to the firm's productivity.

Therefore, the correct answer is D) All of the above.