Question

A standard efficiency wage model pays workers higher wages in order to increase worker efficiency. As...

A standard efficiency wage model pays workers higher wages in order to increase worker efficiency. As a result, firm profits increase and there is a pool of involuntarily unemployed workers. This equilibrium comes about in part because

Multiple Choice

  • workers are unaware of the pool of unemployed workers as long as they keep their job.

  • the firm agrees to not replace labor with capital.

  • the firm pays workers according to a tournament.

  • workers will do anything to be paid a higher wage.

  • workers are less likely to shirk when there is a pool of unemployed workers who are willing to take their job.

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Answer #1

Ans) the correct option is workers are less likely to shirk when there is a pool of unemployed workers who are willing to take their job.

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