How can paying workers an above-market wage result in greater efficiency? What are the implications for the flexibility of wages?
What will be an ideal response?
An above-market wage raises the opportunity cost of losing a job. Workers thus have more incentive to work hard and put more effort into their jobs. Higher wages also reduce shirking on the job, so the firm does not have to hire as many supervisory personnel to make sure workers are doing their jobs. The higher wage also reduces turnover which can be costly to firms. The implication for the flexibility of wages is that they would tend to be more inflexible if efficiency wages are paid. Employers would be reluctant to cut wages because it can lower morale, increase shirking, and increase turnover.
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Based on the data in the table, this Application addresses the economic concept of
A) the real-nominal principle. B) the principle of diminishing returns. C) the principle of voluntary exchange. D) the marginal principle.
The appropriate discount rate should not be adjusted for _____
a. inflation b. risk of default c. taxes on interest d. a and c
The price of a piece of pizza is $1 and the price of a movie is $6 and the consumer has $14. A consumer has purchased 2 pieces of pizza and 2 movies, receiving 20 units of utility for the second piece of pizza and 100 units of utility for the second
movie. When the consumer spends all her income, the set of goods A) is an optimum since the entire income is spent and the marginal utility per dollar spent is the same for the last unit of each good. B) is an optimum since the entire income is spent and total utility is maximized. C) is not an optimum because the marginal utility per dollar spent is greater for pizza than for movies and the consumer is not spending all of his income. D) is not an optimum because the marginal utility for each good is not equal.
Stocks are
A. promises to repay loans. B. a liability of a corporation. C. a liability of a proprietorship. D. shares of ownership in a corporation.