Final answer:
Efficiency wages refer to the concept that higher wages can lead to increased productivity, yet they may also result in higher unemployment if productivity changes are not anticipated. A sudden stop in productivity growth can cause unemployment when wages keep rising, whereas a sudden increase in productivity can reduce unemployment with more job offers.
Step-by-step explanation:
Efficiency wages have an impact on both productivity and unemployment within an economy. When productivity is consistently rising, employers and workers become accustomed to regular wage increases. If productivity unexpectedly ceases to increase, wages may continue to rise due to inertia in wage expectations, despite there being no increase in labor demand, leading to unemployment where the quantity supplied of labor exceeds the quantity demanded.
Conversely, if productivity has been flat and then suddenly increases, this can shift labor demand upward from D0 to D1. At the current wage level (W), more labor is demanded than supplied, resulting in a low unemployment rate as job offers become plentiful. In this scenario, efficiency wages can increase productivity but also contribute to an increase in unemployment until wage and labor demand equilibrate.