In the context of labour markets, the 'Efficiency Wage' theory suggests that:
A. Only competitive wages maximise effort
B. Wages are always equal to the marginal product of labour
C. Unemployment is only voluntary
D. Firms may pay wages above the market-clearing level to raise productivity or reduce turnover
Answer: Option D
Solution (By JKSSB Mock Tests)
Efficiency-wage theories argue that higher wages can increase worker effort, reduce shirking, lower turnover or improve the quality of applicants, so that firms may optimally set wages above the market-clearing level.
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