An efficiency wage
A)gives an employee an incentive to shirk his duties.
B)is lower than the equilibrium wage for that position and region.
C)is higher than the equilibrium wage for that position and region.
D)both a and b are correct.

Question

Quizplus · Accepted Answer

An efficiency wage is a wage that is deliberately set higher than the equilibrium wage for a particular job in a specific region. This is done to motivate workers to be more productive and to reduce labor turnover, leading to higher overall efficiency and profitability for the firm. Option A is incorrect because an efficiency wage is intended to provide workers with an incentive to work harder and perform better, not to shirk their duties. Option B is incorrect because an efficiency wage is deliberately set higher than the market equilibrium for that job and region, not lower.

An Efficiency Wage