Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 9 The Real Economy in the Long Run
Chapter 28 of 36 Unemployment
Section 17 of 23
...
In this chapter we discuss four explanations for long-run unemployment
-1- frictional unemployment
-2- minimum wage laws
-3 - unions and collective bargaining
-4- efficiency wages
…
-4- Efficiency Wages
The theory of efficiency wages holds firms can operate more efficiently and profitably if they pay wages above equilibrium level.
The unemployment that arises from efficiency wages is similar to that arising from minimum-wage laws and unions.
Unemployment results from paying wages above the level that balances the quantity of labor supplied and the quantity of labor demanded.
An important difference is efficiency wages are set at the discretion of the firm.
Minimum-wage laws and union wages are forced on the firm.
…
Efficiency wage theory holds government and union forced wage levels are unnecessary, because firms are better off paying wages above equilibrium level.
Normally, we expect profit maximizing firms to want to keep costs including wages paid as low as possible.
The insight of efficiency wage theory is paying high wages might be profitable, because they can raise the efficiency of workers, and not incur the costs of employee turnover.
We will consider four aspects of efficiency wage theory, each suggests a different explanation for why firms often pay above-equilibrium wages:
· worker health
. worker turnover
· worker quality
· worker effort
…
equilibrium level wages
kinkō suijun chingin
均衡水準賃金

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