Employment and Unemployment

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firms willingly pay wages above the market-clearing wage to increase worker productivity

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6 Terms

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Efficiency wage

When firms willingly pay wages above the market-clearing wage to increase worker productivity

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What are the main reasons firms might pay above-market wages?

  1. To reduce turnover

  2. attract higher-quality candidates

  3. Enhance motivation and productivity

  4. Discourage shirking among employees.

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Why does an increase in productivity increase the labour demand

Because it increases the marginal value product of labor

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What is the natural rate of unemployment

Structural + frictional