Definition of The Efficiency Wage Hypothesis: The hypothesis that workers' productivity depends positively on their wages. (For reasons this might be the case see the entry on efficiency wages.)

This could explain why employers in some industries pay workers more than employers in other industries do, even if the workers have apparently comparable qualifications and jobs. A contrasting explanation is that of hedonic models in which these differentials are explained by quality differences in the jobs. (Econterms)

Terms related to The Efficiency Wage Hypothesis:

• Efficiency wages
• Hedonic