All posts tagged: Workers

Why Pay Workers More? skepticsociety.co.uk

Why Pay Workers More?

AN ECONOMIST’S GUIDE EFFICIENCY WAGES The term “efficiency wages” or “efficiency earnings” was first introduced by influential economist Alfred Marshall (1842-1924) to represent a unit of labor based upon the relationship between wage and efficiency. According to Marshall, the theory behind efficiency wages would require that employers pay based upon output or efficiency, meaning that more efficient workers would be paid more than less efficient workers which would render the employer theoretically indifferent towards workers of ranging efficiencies. Today, the term has taken on a different meaning. The modern use of the term efficiency wage is in reference to the hypothesis that wages in some markets are not always based upon the process of market-clearing, which requires that supply be equal to demand. Market clearing wage, for instance, is the wage or pay scale at which the quantity of labor is equal to the demand or need for labor. It is when this supply equals demand that the market is cleared of all excess. Efficiency Wage Theory In economic theory, market clearing presents the most …