Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 11, Problem 1RQ
To determine
To Explain: The concept of efficiency wage and its underlying assumptions on worker behavior.
Expert Solution & Answer
Answer to Problem 1RQ
According to the efficiency wage, the higher the real wage, the better an employee would work in his job.
Explanation of Solution
The efficiency wage could be defined as the real wage that is instrumental in uplifting the effort put in by an employee or the efficiency level of the employee per dollar of the real wage earned. It is assumed that employees would work harder if the real wage is higher. In other words, employee efficiency would be higher if the real wage is also higher. Even amidst the supply of labor being excessive, the real wage would be set rigid. This is due to the fact that organizations do not reduce the wage paid to employees. This would however, reduce the profit margin of the organization because they would anyway be paid with their wage.
Economics Concept Introduction
Introduction: Efficiency wage theory is a theory related to
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