Enter aggregate supply - Why is there unemployment in equilibrium? - Efficiency wages

5 important questions on Enter aggregate supply - Why is there unemployment in equilibrium? - Efficiency wages

What does the nutrition argument of efficiency wages state?

That when wages are so low the workers can't afford enough food, it may pay off to increase wage such that the worker can afford sufficient food and increases productivity because health improved

What does the adverse selection argument state in efficiency wages?

That more competent people look for higher paying jobs, so offering higher wages attracts more capable workers

What does the shirking argument state in efficiency wages theory?

That by raising wages above market clearing wage and firing workers who shirk, there will be an incentive to reduce shirking and increase productivity. Because the wages are above market clearing wage we find involuntary unemployment
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What does the turnover costs argument state in efficiency wages theory?

That increasing wages increases the odds of employees staying with the firm. This reduces turnover costs, this can be a positive balance.

What does the fairness argument of efficiency wages theory state?

That people feeling they are treated fairly are more productive workers

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