Discuss How an Efficiency Wage Leads to an Increase in the Natural

Question

Examlex · Accepted Answer

The Answer is <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB1454/11ea5157_58de_c375_b971_dd8cf82b79f1_TB1454_00.jpg" alt="  An efficiency wage rate is a wage that is set by a firm above the equilibrium wage rate in order to motivate the firm's workers to work hard.The idea is that workers will work hard in order to keep their jobs because they know that if they are fired, the (equilibrium) wage rate they are likely to get at a new job will be less than the efficiency wage.But, because the efficiency wage rate exceeds the equilibrium wage rate, there is a surplus of labor because the quantity of labor demanded decreases and the quantity supplied increases.The surplus is unemployment.In the figure above, the equilibrium real wage rate is W and the efficiency wage is Wₑff.At the equilibrium wage rate, there is no unemployment because the quantity of labor demanded equals the quantity supplied.But, with the efficiency wage, the figure shows that there is a surplus of labor.This surplus, which is the amount of unemployment, equals the quantity of labor supplied, Ls, minus the quantity of labor demanded, Ld." class="answers-bank-image d-block" rel="preload" > An efficiency wage rate is a wage that is set by a firm above the equilibrium wage rate in order to motivate the firm's workers to work hard.The idea is that workers will work hard in order to keep their jobs because they know that if they are fired, the (equilibrium) wage rate they are likely to get at a new job will be less than the efficiency wage.But, because the efficiency wage rate exceeds the equilibrium wage rate, there is a surplus of labor because the quantity of labor demanded decreases and the quantity supplied increases.The surplus is unemployment.In the figure above, the equilibrium real wage rate is W and the efficiency wage is Wₑff.At the equilibrium wage rate, there is no unemployment because the quantity of labor demanded equals the quantity supplied.But, with the efficiency wage, the figure shows that there is a surplus of labor.This surplus, which is the amount of unemployment, equals the quantity of labor supplied, Ls, minus the quantity of labor demanded, Ld.

Discuss How an Efficiency Wage Leads to an Increase in the Natural

Definitions: