Question

The efficiency-wage theory of worker turnover suggests that firms with higher turnover will have A. higher production costs and higher profits. B. lower production costs and higher profits. C. higher production costs and lower profits. D. lower production costs and lower profits.

Answer 1

Answer:

The correct answer would be option A, Higher Production Costs and Higher Profits.

Explanation:

The Efficiency Wage theory of worker turnover states that if employee are paid more wages than the equilibrium level, the level of employee's efficiency increases which in turn will increase the productivity of the organization and thus contribute in the increase of profitability for the organization, and vice versa. It is commonly known that when wages increase, the production costs also increase. So this theory suggests that firms with higher turnover will have higher production costs and higher profits.

Answer 2

Answer:

I believe the correct answer is C: higher production cost and lower profits

Explanation:

High turnover is directly connected with low efficiency, due to costly and time consuming worker on-boarding and training which translates into deterioration of margin (lower profits).