Question

The "efficiency wage" theory states that …
a. wages should be set with short-term contracts to allow for the maximum flexibility as market conditions change.
b. employers can motivate employees by paying them more than the prevailing wage.
c. wages should be set with long-term contracts to avoid inefficiencies associated with temporary changes in market conditions.
d. existing employees can keep their wages artificially high as compared to newer workers.

Answer 1

Answer:

The answer is: B) employers can motivate employees by paying them more than the prevailing wage.

Explanation:

The "efficiency wage" theory states that if an employer increases the wage of his (or her) employees, they will be motivated and their productivity will increase. The increase in productivity should offset the increased labor costs. So the costs of higher wages should be recouped through increased productivity.