The theory of "efficiency wages" says that firms which cannot monitor workers' efforts well should instead pay high wages to make it costlier for them to risk being sacked.

The traditional neo-classical economic theory considers that wages are the reward for marginal product. In the perfectly competitive market, homogeneity of workers implies the same wage for all.

The theory of "efficiency wages" says that well-paying firms can induce staff to work harder by improving morale or by making it costlier for them to risk being sacked.