The efficiency-wage theory holds that self-correction in an economy will not automatically
Jeliminate a recessionary gap.

Question

Quizplus · Accepted Answer

The efficiency-wage theory argues that wages paid above the market equilibrium can increase worker productivity, reduce absenteeism and turnover, and result in lower labor costs. However, this means that firms may be reluctant to reduce wages in times of economic downturn, which can lead to sticky wages and persistent unemployment, even if there is a recessionary gap in the economy. Therefore, self-correction may not occur automatically in this case.

The Efficiency-Wage Theory Holds That Self-Correction in an Economy Will