Final answer:
A higher wage can lead to lower labor costs per unit of output by fostering greater work effort, reducing turnover, and minimizing training and hiring costs. Efficiency wage theory underscores the positive relationship between better pay and higher labor efficiency.
Step-by-step explanation:
A higher wage could result in a lower labor cost per unit of output than a lower wage if the higher wage brings forth greater work effort. This concept is often encompassed within the efficiency wage theory, which suggests that workers' productivity is influenced by their pay. The theory indicates that paying employees above the market rate can lead to several benefits for the employer.
Higher productivity may be elicited due to better compensation, as employees understand the value of their position and strive to maintain it, knowing that losing their job could mean a decline in salary. Consequently, they are more inclined to work harder and exhibit greater loyalty to their current employer.
Additionally, workers tend to remain longer at their jobs when they are part of unions, resulting in less turnover. This continuity reduces employer costs related to training, hiring, and the potentially costly job training and apprenticeship programs that many unions provide. This stability of employment, combined with higher wages, can lead to a workforce that accrues years of experience, thereby further enhancing labor efficiency and lowering costs per unit of output.