Question

Ariana is the CEO of a corporation that hires nonunion labor. According to the theory of efficiency wages, if she decides to pay her workers more than the competitive equilibrium wage, then a. the profits of her firm might increase. b. she will face a shortage of labor. c. the turnover of her workers may increase. d. None of the above is correct.

Answer 1

Answer:

the profits of her firm might increase.

Explanation:

Efficient wage theory postulates that productivity will increase as a result of increased wages. This is because the employee is more motivated to work when they are earning higher wages.

Efficiency wages are higher than the equillibrum wage paid in the industry.

Managers favour efficient wage payment because it reduces staff turnover and attracts more productive employees to the company.

On the other hand the manager can also cut down salary and employ more workers to perform the task.