With reference to the labour market model, which of the following statements is correct?Select one correct answerGroup of answer choicesThe unemployed can get a job by offering to work for a wage lower than the equilibrium wageFirms aim to set as high a price as possible.Once they have the job, employees are better off not exerting any effort in their work.In order to motivate employees to work hard and well, firms set the wage sufficiently high so that workers receive an employment rent, in other words, there is a nonzero cost of job loss.
Question
With reference to the labour market model, which of the following statements is correct?Select one correct answerGroup of answer choicesThe unemployed can get a job by offering to work for a wage lower than the equilibrium wageFirms aim to set as high a price as possible.Once they have the job, employees are better off not exerting any effort in their work.In order to motivate employees to work hard and well, firms set the wage sufficiently high so that workers receive an employment rent, in other words, there is a nonzero cost of job loss.
Solution
The correct statement with reference to the labour market model is: "In order to motivate employees to work hard and well, firms set the wage sufficiently high so that workers receive an employment rent, in other words, there is a nonzero cost of job loss."
This is based on the concept of efficiency wages, where firms pay above the equilibrium wage to increase worker productivity and efficiency. The higher wage increases the cost of job loss for the employee (employment rent), which in turn motivates them to work harder to avoid job loss.
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