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

Paying an efficiency wage raises the cost to workers of losing their jobs, even if the risk of being dismissed for shirking is low, which encourages them to work harder. This solves the problem of monitoring worker effort, as the employer does not have to closely monitor workers to ensure they are working hard.

If the Cost of Monitoring Worker Effort Is High, Then