What is an Efficiency Wage?
An efficiency wage is a wage that is extended to an employee as a means of motivating that employee to remain with the company, rather than seek opportunities with competitors or even in another industry altogether. Along with increasing the chances of keeping a valued employee, the extension of this type of wage can also serve as the impetus for increasing the general productivity of the employee. This is because the employee feels valued by the employer and is willing to put forth additional effort in response to that perception. One of the characteristics of an efficiency wage is that the figure is not based solely on the current standards set within the industry. Instead, the wage serves as a means of meeting and exceeding that current standard. The increased wages help to attract more qualified employees, as well as provide them with a reason to remain with the company for an extended period of time. This is in contrast to the idea of setting wages based on the supply of potential
