Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Economic Analysis & Monetary Policy

Efficient Wage Theory

What is the Efficient Wage Theory?

Written by Jason Gordon

Updated at March 28th, 2023

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

What is the Efficient Wage Theory?

Efficiency wage theory argues that workers' productivity depends on their pay, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate. One reason is that employees who receive better pay than others will be more productive because they recognize that if they were to lose their current jobs, they would suffer a decline in salary. As a result, they are motivated to work harder and to stay with the current employer. In addition, employers know that it is costly and time-consuming to hire and train new employees, so they would prefer to pay workers a little extra now rather than to lose them and have to hire and train new workers. Thus, by avoiding wage cuts, the employer minimizes costs of training and hiring new workers, and reaps the benefits of well-motivated employees.

Back to: ECONOMIC ANALYSIS & MONETARY POLICY

Related Topics

  • What is the US Labor Force?
  • Out of the Labor Force
  • Labor Force Participation Rate
  • Establishment Payroll Survey
  • Bureau of Labor Statistics 
  • Unemployment 
  • Underemployed
  • Full Employment Equilibrium
  • Okun's Law
  •  Issues with Measuring Unemployment
  • Cyclical Unemployment
  • Sticky Wage Theory (Economics)
  • Implicit Contract Theory of Wages
  •  Efficient Wage Theory
  • Adverse Selection of Wage Cuts Argument
  • The Insider-Outsider Model
  • Relative Wage Coordination Argument
  • Natural Rate of Unemployment
  • Frictional Unemployment
  • Structural Unemployment
  • Labor Productivity - Explained
  • Okun's Law
  • How does U.S. unemployment insurance work?
  • National Average Wage Index
  • Job Openings and Labor Turnover Survey
  • Labor Surplus Area - Explained
  • Lump of Labor Fallacy - Explained
  • Bureau of Labor Statistics 
  • ADP National Employment Survey
  • Labor Theory of Value - Explained
  • Wage Elasticity of Labor Supply
efficient wage theory wage optimization

Was this article helpful?

Yes
No

Related Articles

  • Dove & Hawk (Monetary Policy) - Explained
  • Economic Cycle - Explained
  • Regulatory Capture - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand