Asked by Brycen Cluster on May 11, 2024
Verified
Suppose the demand for labor shifts rightward due to economic growth, but the supply of labor remains unchanged. How does this affect the market outcome under an efficiency wage equilibrium?
A) Efficiency wage and employment are higher.
B) Efficiency wage is lower, employment is higher.
C) Efficiency wage is higher, employment is lower.
D) Efficiency wage and employment are lower.
Efficiency Wage Equilibrium
A state in which employers pay above-market wages to increase productivity and reduce turnover among employees.
Demand for Labor
The total amount of workers that employers are willing and able to hire at a given wage rate in a certain period.
Efficiency Wage
A theory suggesting that higher wages may increase worker productivity and efficiency by attracting better applicants, reducing turnover, and increasing worker morale.
- Examine the impact of efficiency wages on labor demand, labor supply, and unemployment rates.
- Recognize the motivations behind firms' preference for disbursing efficiency wages.
Verified Answer
MB
Megan BradshawMay 17, 2024
Final Answer :
A
Explanation :
When the demand for labor increases due to economic growth, but the supply of labor remains unchanged, employers will need to attract more workers. Under an efficiency wage equilibrium, firms pay above the market-clearing wage to increase productivity and reduce turnover. With a rightward shift in labor demand, firms will raise wages further to attract the needed additional workers, leading to both higher efficiency wages and higher employment levels.
Learning Objectives
- Examine the impact of efficiency wages on labor demand, labor supply, and unemployment rates.
- Recognize the motivations behind firms' preference for disbursing efficiency wages.