If the efficiency wage theory holds,
A) only highly qualified, efficient workers get the jobs.
B) the labor market clears at the equilibrium wage rate in the long-run.
C) workers with jobs will receive high wages and workers without jobs would be willing to work for lower wages but are closed out of the market.
D) the labor market is efficient.

Question

Quizplus · Accepted Answer

The efficiency wage theory suggests that employers pay workers higher wages than the equilibrium wage rate to motivate them to be more efficient and productive. This can lead to unemployment as workers who are willing to work for lower wages may be closed out of the market. Thus, workers with jobs receive high wages while workers without jobs may be willing to work for lower wages but cannot find employment. Option A is not true because the theory does not imply that only highly qualified workers get jobs. Option B is incorrect because the theory suggests that the labor market does not clear at the equilibrium wage rate. Option D is also incorrect because the theory does not necessarily mean that the labor market is efficient.

If the Efficiency Wage Theory Holds