Question

State the importance of designing economically efficient wage contract.

Answer 1

Firms that pay efficiency wages could lower their wages and hire more workers, but choose not to do so.

The consequence of the efficiency wage theory is that the market for labor does may not clear, even in the long run, and unemployment may be persistenly higher than its natural rate.

Hope this helps you ☺️☺️✌️✌️❤️❤️