True or False?
The statement is false. Efficiency wage theory defines the response of effort to the wage rate without mention of cultural and taste factors---the amount of unemployment generated by any given response function will presumably vary according to socio-economic conditions. It then remains to be specified why or whether this effort-response function will be insensitive to the unemployment level in the industry or the economy as a whole. Conventional labour supply functions also depend on cultural factors but these do not impede the establishment of zero involuntary unemployment.
One argument that often appears in efficiency wage theories is that the prospect of joining the ranks of the involuntarily unemployed is what spurs workers to increase their effort in response to increases in the real wage rate. But this is only one of a number of ways of rationalizing a response of effort to the real wage paid. The rationale for the response function is crucial---without such a rationale, the specification of an equilibrium level of involuntary unemployment is arbitrary. There is nothing to prevent implicit contacts between individual workers and firms regarding the wage rate in relation to worker-effort.