ECON 248 9.5 The Theory Of Efficiency Wages

The theory that firms operate more efficiently if wages are kept above equilibrium level.

Efficiency Wage Theory

The first part of efficiency wage theory is establishes a link between () and wages, as higher wages mean being able to afford healthcare and better food.

Health

The 2nd part of the efficiency wage theory is that paying people better results in less (), which firms care about since it is expensive to train new workers.

Worker Turnover

The 3rd part of efficiency wage theory is that workers are more likely to put in more () when their wages are higher.

Effort

The 4th part efficiency wage theory is that high wages attract better ().

Worker Quality

The wage level that allows the earner to afford shelter, food, and the other necessities of life.

Living Wage