Which assumption does the theory of efficiency wages challenge
A)Workers are efficient.
B)Workers have an incentive to shirk their responsibilities to their employers.
C)Wages adjust to balance labour supply and labour demand.
D)Firms sometimes choose to pay their workers above-equilibrium wages.

Question

Quizplus · Accepted Answer

The theory of efficiency wages challenges the assumption that wages adjust to balance labour supply and labour demand. According to this theory, paying workers above-equilibrium wages can actually increase their productivity and reduce turnover, leading to lower overall labour costs for the firm. Thus, firms may have an incentive to pay higher wages than the market equilibrium to promote worker effort and loyalty.

Which Assumption Does the Theory of Efficiency Wages Challenge