MENTAL MODEL · M4666

Efficiency Wage

BusinessHigh supportLabor Economics

Included

Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

Firms deliberately pay wages above the market-clearing level. The purpose is not charity but to: 1. attract better talent; 2. increase the opportunity cost of shirking for employees (anti-shirking); 3. reduce turnover rates.

SCAFFOLDING EFFECT

psychology

Reduce cognitive load

Things that cannot be bought with money require more money to buy. Qualities like loyalty and self-drive, which seem moral, can essentially be purchased through above-expected pricing. Cheap labor is often the most expensive (because it lacks these hidden qualities).

anchor

Anchor fast decisions

Firms pay wages above the market-clearing level to increase employee effort, reduce turnover and screening costs, which may actually be more cost-effective. It explains why involuntary unemployment exists.

MINIMUM ACTION

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Practice this model in one real situation:

Assess the costs of monitoring shirking and turnover, and set wages above equilibrium. Combine with supervision and promotion incentives.

Check to track your progress (stored locally)

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Source support: Explicit

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zh.wikipedia.orghttps://zh.wikipedia.org/wiki/%E6%95%88%E7%8E%87%E5%B7%A5%E8%B3%87ZH · Explicit
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