Suggest solutions to the limitations of the Efficiency Wage Model.
Answers
Efficiency Wage theory can be split into four ways that paying a higher wage can improve your organisations production. These are: decreased shirking, increased retention, higher quality recruits, and healthier employees.
Various labour market imperfections, such as imperfect information and contracts, imperfect monitoring, labour turnover costs, psychological motivations for higher than the market-clearing wages, endogenous labour market frictions due to job creation and job destruction, and of course efficiency wages
If firms take this into account and set their wages accordingly, the resulting wages could fail to adjust demand and supply but may induce phenomena like over-education, discrimination, regional wage differentials, and a tendency for larger firms to pay higher wages.
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