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Efficiency Wage


Definition: Efficiency Wage is the economic concept that - simply put - implies that employers get more if they pay more: the increased labor productivity pays for the relatively higher wages.
More recently it refers to the economic idea that higher wages increase the efficiency of the workers due to various reasons, making it worthwhile for companies to offer wages that exceed a market-clearing level. The optimal efficiency wage is reached at the point where the marginal cost of an increase in wages is equal to the marginal benefit of the improved productivity to an employer.


Learn more about Efficiency Wage.

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