Marginal productivity determines the amount of revenue that worker brings their employer per hour of work. Because companies compete with each other for workers, a worker's wage will be close to that marginal productivity. If a worker is making significantly less than their marginal productivity, another person can make a profit by hiring them for slightly more than they're making, and so on until the wage is approximately the marginal productivity.
When Ford employed the high wage policy and provided workers with “the $5-a-day wage” he had doubled the amount of wages that were being paid to the average worker at the time. By increasing the wages Ford managed to accomplish several things. He managed to establish a solid-middle class with these wages which increased the buying power of those he employed.
He also managed to decrease high turnover and excessive abdenteeism rates by making jobs more attractive with higher wages. Hiring replacement workers and training them were very costly, therefore increasing wages insured that employees would be eager to keep their jobs. Higher wages decreased employee turnover and also increased productivity since employees were more eager to work hard to keep their jobs.
Asymmetry of information occurs when one person in a transaction knows more about what is going on than the other person. With Ford's model he knew by doubling wages he would increase profits because he was increasing the buying power of his employees. Therefore he was paying employees, however since they had more money they were more likely to buy his product and increase his overall revenue. The efficiency wage hypothesis argues that wages in some markets are determined by more than supply and demand. Specifically, it points to the incentive for managers to pay their employees more than the market-clearing wage in order to increase their productivity or efficiency. This increased labor productivity pays for the higher wages. Two forms of asymmetric information are adverse selection and moral hazard. Adverse selection is is referred to as hidden information, for example when the seller knows more information about a product than the buyer. Moral hazard is when one side of the market cannot observe the actions of the other side of the market. The increase in pay can be explained by either moral hazard or adverse selection. In accordance with the idea of efficiency wages, Ford might have wanted workers who worried about losing their premium job at his factory, because they would work harder and refrain from shirking (moral hazard). Adverse selection can also explain the increase in pay, by increasing his wage Ford attracted a mixture of low and high quality workers rather than low quality alone.