The efficiency wage is:
A) a wage at which there is no unemployment, and shirking workers are not counted in the pool of total labor.
B) a wage at which there is a positive amount of unemployment. Individuals who are fired for shirking will be penalized with a period of unemployment.
C) a wage at which there is a shortage of labor. Firms who fire a worker for shirking will be able to hire another one easily.
D) the wage that is paid to high-quality, non-shirking workers. Other workers are paid the market-clearing wage.
E) the wage that subtracts the cost of shirking from the market-clearing wage to determine that which is really paid.

Question

Quizplus · Accepted Answer

Efficiency wage theory suggests that firms pay a wage higher than the market-clearing level to increase worker productivity and reduce shirking. This creates a situation where there is a positive amount of unemployment because not everyone who wants to work at that wage can find a job. This unemployment acts as a deterrent against shirking because workers risk a period of unemployment if they are fired for shirking.

The Efficiency Wage Is