Efficiency wages create a
A)shortage of labor and so reduce unemployment.
B)shortage of labor and so raise unemployment.
C)surplus of labor and so reduce unemployment.
D)surplus of labor and so raise unemployment.

Question

Quizplus · Accepted Answer

Efficiency wages are wages that are above the equilibrium wage rate. This creates a surplus of labor, as more people are willing to work at the higher wage rate, but there are not enough jobs available. As a result, unemployment increases. Therefore, the best choice is D, which states that efficiency wages create a surplus of labor and raise unemployment.

Efficiency Wages Create a