Macroeconomic theory Business & Marketing Essay Paper (Essay Sample)
The reading this week is an article by Janet Yellen from her academic days. As an academic, she essentially was a macroeconomist with a focus on the labor market. In any case, in this article she fleshes out some of the explanations behind efficiency wage theory. Are you a believer in efficiency wage theory, or are efficiency wage explanations simply a rationale to provide support for non-market clearing models?
Please provide comments on the attached article.
You may draw connection to the PPT attached.
Your objective should be to understand the ‘main objectives’ or ‘takeaways’ of the article.
The efficiency wage theory postulates that the labor productivity of a firm depends on the real wage that employees receive. In this case, cutting wages affect an enterprise’s productivity and might end up increasing the cost of labor. Indeed, I believe in the efficiency wage theory. For example, if we consider an economy that has perfectly competitive enterprises, the production function should be Q=F(e(w)N), where w refers to the real wage, e refers to the worker’s effort, and N entails the number of employees (Yellen, 1984). As such, a firm that wants to maximize its profits can hire all workers it wants at the wage of its choice. However, an organization should hire employees at the point where the marginal product is the same as the real wage.
The PowerPoint makes it clear that employees’ efforts increase with the real wage
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