Final Answer:
Some firms voluntarily pay workers a wage above the market equilibrium, even in the presence of surplus labor, because it leads to higher productivity.The correct option is B. Paying higher wages encourages workers to be more productive.
Step-by-step explanation:
In a competitive labor market, the market equilibrium wage is determined by the interaction of supply and demand. This means that firms can hire as many workers as they want at the market equilibrium wage, but there will still be some workers left over who are unable to find employment. These workers are considered surplus labor.
Despite the availability of surplus labor, some firms choose to pay their workers a wage above the market equilibrium. This may seem counterintuitive, as it could lead to higher labor costs and lower profits. However, there is a compelling reason for this behavior: higher wages lead to higher productivity.
Research has shown that there is a positive relationship between wages and productivity. This means that as wages increase, productivity also increases. This relationship is known as the "efficiency wage hypothesis." The hypothesis suggests that firms can improve their productivity by paying their workers a wage above the market equilibrium.
The reason for this is that higher wages can lead to higher worker motivation and job satisfaction. When workers are paid more than the market equilibrium, they are less likely to quit their jobs in search of higher wages elsewhere. This reduces turnover costs for the firm and allows them to retain experienced and skilled workers. Additionally, higher wages can lead to lower absenteeism and fewer errors on the job, which further improves productivity.
In summary, some firms voluntarily pay their workers a wage above the market equilibrium because it leads to higher productivity. While this may result in higher labor costs in the short run, it can lead to long-term benefits for the firm in terms of reduced turnover costs, lower absenteeism, and fewer errors on the job.
Therefore, The correct option is B. Paying higher wages encourages workers to be more productive.