Efficiency-wage hypothesis

The Efficiency-wage hypothesis suggests that employers may pay workers higher-than-market wages to boost productivity. When wages are increased, employees tend to be more motivated, healthier, and less likely to slack off, which can lead to better performance, fewer absences, and lower turnover. This investment in higher wages helps companies save costs associated with hiring and training new workers and can improve overall efficiency. In essence, paying workers more can be a strategic choice to gain a more committed, productive workforce.