A standard efficiency wage model pays workers higher wages in order to increase worker efficiency. As a result, firm profits increase and there is a pool of involuntarily unemployed workers. This equilibrium comes about in part because
A. workers are unaware of the pool of unemployed workers as long as they keep their job.
B. workers will do anything to be paid a higher wage.
C. workers are less likely to shirk when there is a pool of unemployed workers who are willing to take their job.
D. the firm agrees to not replace labor with capital.
E. the firm pays workers according to a tournament.
Answer: C
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Bankers must always trade off
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