According to the efficiency wage theory,
A)there will be no unemployment in the economy.
B)a higher real wage will increase worker productivity.
C)economic agents tend to underestimate the rate of inflation.
D)employers hold wages below their equilibrium level.

Question

Quizplus · Accepted Answer

The efficiency wage theory states that higher real wages increase worker productivity, as workers are motivated to work harder and remain with their current employer. This is because higher wages make it more costly for workers to be fired or quit. Therefore, employers are willing to pay higher wages to attract and retain productive workers, which leads to lower turnover and less training costs. The theory does not suggest that there will be no unemployment in the economy, nor does it claim that economic agents tend to underestimate the rate of inflation. Finally, employers in this theory hold wages above their equilibrium level to increase productivity.

According to the Efficiency Wage Theory