Question

Based on the Efficiency Wage Theory, the following are potential short term effects resulting from an increase in Wage by a Firm A, EXCEPT:

Question options:

	Increase in the quality of workers applying to work for Firm A.
	Increase in the number of job available at Firm A.
	Decrease in turnover at Firm A.
	Increase in the Productivity of the workforce at Firm A .

According to the analysis and data presented in class, the following are likely causes for growing economic inequality in USA within the last few decades, EXCEPT:

Question options:

	Relatively large increase in the demand for high skilled workers.
	Relatively larger increase in the supply of low skilled workers.
	Tendency of high income earners to marry other high income earners.
	An exponential increase in the quality of skills reported by the top high skilled workers.

Answer 1

1. Option b is the answer.

• Increase in the number of job available at firm A.
• Efficiency wage theory suggests that, an increase in the wage will result in increased loyalty of labourers, high quality labourers applying for the job, decreased employee turnover, etc. It does not suggest that there will be an increase in number of jobs available.

2. Option d is the answer.

• An exponential increase in the quality of skills reported by the top high skilled workers.
• Inequality is associated with many economic factors. In USA, the supply of low skilled workers from Asia and other places who are also low wage workers are increasing. This way, the natives are not having enough job opportunities. The demand for high skilled workers are increasing due to technological advancements and tendency of high income earners to marry other high income earners are also another reason for existing inequality.