we have This means that if the firm increases their wage their profit becomes constant or even larger. Because after the employee's salary increases, the employee will work harder, and will not easily quit or go to other companies. This increases the stability of the company and the motivation of employees. Thus the efficiency wage theory motivates the owners of the firm to raise the wage to increase the profit of the firm, and high wages can also be called a reward mechanism. See also Minimum wages Gift-exchange game Notes References Personnel economics Labour economics New Keynesian economics