Question

Wages that are above the wage that workers would be willing to accept, where the premium is paid to increase worker productivity, are referred to as:

A) Wage floors
B) Efficiency wages
C) Wage ceilings
D) Productivity wages

Answer 1

Efficiency wage

theory argues that workers' productivity depends on their pay, which is often higher than market conditions, motivating them to work harder and stay with the current employer. Paying employees more than the market rate helps employers avoid the costs of hiring and training new workers.

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.