If the cost of monitoring worker effort is high, then a firm can encourage workers to work hard by paying an efficiency wage because
A) Paying an efficiency wage means a firm can monitor its workers more cheaply.
B) The efficiency wage will encourage workers to monitor each other's effort and report shirking to the employer.
C) Efficiency wages guarantee efficiency.
D) The efficiency wage will raise the cost to workers of losing their jobs, even though there may be a low risk of being dismissed for shirking.

Question

Quizplus · Accepted Answer

When the cost of monitoring worker effort is high, paying an efficiency wage may be a cost-effective strategy for firms to encourage workers to work hard. This is because an efficiency wage increases the cost to workers of losing their jobs, even if the risk of being dismissed for shirking is low. As a result, workers are more likely to put in effort and work hard to avoid losing their jobs, which can ultimately increase efficiency and productivity for the firm.

If the Cost of Monitoring Worker Effort Is High, Then