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A. Overpaying Workers The first widely-cited example of “efficiency wages” is Henry Ford’s more than doubling...

A. Overpaying Workers The first widely-cited example of “efficiency wages” is Henry Ford’s more than doubling the wages of his auto workers in 1914. 1. What was Ford’s motivation in doing this? 2. What was the result of the “experiment”? Why did it work? 3. What other reason does the text offer for overpaying workers?

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Answer #1

Efficiency wage theory states that labors are paid more than their marginal productivity in other word wages are more than the market equilibrium wage.

A) The classical example efficiency wage theory is Ford Motor company and wages the company paid wages more than their marginal productivity by paying higher wages their marginal productivity increased.The wage rate in the USA in 1914 $4 and employees are paid $5.

2) The results of their experiment are the company able to retain a quality of the workers and long run it resulted profitably for their business and profit earning and reducing employees attrition.

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