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Economics 101: Efficiency Wages | SterlingTerrell.net

Economics 101: Efficiency Wages


What are efficiency wages?

Efficiency Wages are wages that are above market, which are paid to increase the productivity of a worker.

The theory goes like this:

Say a business knows a worker is worth $70,000 per year to them.

But the worker will accept the job for anything over $35,000 per year.

Businesses that pay the worker closer to $35,000 per year (the market rate) might have a worker that is less motivated, less loyal, less productive, and more willing to shirk responsibilities.

Businesses that pay the worker closer to $70,000 per year might have a worker that is more motivated, more loyal, more productive, and less willing to shirk responsibilities.