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Report on Economic Concept of Efficiency Wages

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Added on  2020-05-01

Report on Economic Concept of Efficiency Wages

   Added on 2020-05-01

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Running head: HUMAN RESOURCE ECONOMICS Human Resource EconomicsName of the StudentName of the UniversityAuthor Note
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1HUMAN RESOURCE ECONOMICS Table of ContentsIntroduction......................................................................................................................................2Findings from the literatures............................................................................................................4Equitable wage distribution.........................................................................................................4Inequalities in wage distribution..................................................................................................4Pay for performance model.........................................................................................................5Efficiency wage theory................................................................................................................6Backward bending supply curve of labor....................................................................................8Empirical evidences...................................................................................................................10Conclusion.....................................................................................................................................11References......................................................................................................................................12
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2HUMAN RESOURCE ECONOMICS Introduction Employment is one of the most crucial issues of concern in every economy in the world.Employment structures prevailing in the economy contributes significantly in determining thestandard of living, over all well being of the resident of the country and the overall economicgrowth of the same. Therefore, it is of utmost importance to study about the key factors, whichinfluence the employment sector of any economy, both, private as well as public (Meer & West,2015). One of such primary factors is the wage structure which prevails in the firms of aneconomy at a particular period of time as a significant share of the behavior of the workers andtheir willingness to work depend on the wage which they are getting which in turn alsodetermine their overall economic well being and lifestyle. The wage structure prevailing in a firm also determines the productivity, prospects andthe long run profitability of the firm as much of the prospects of a firm is related to theemployees working in the firm and how loyal and willing to work they are. In this report, theaspect of wage structure will be taken into account, emphasizing on the issues related to pay forperformance model (Fang & Gerhart, 2012). The report aims to study the literatures presentregarding this issue and its effectiveness, keeping into account the economic concept ofEfficiency Wages and its implications on the performance of the workers. It also tries to analyzethe basis of evaluation of the performance of the workers based on the incentives in payment,which they get in their jobs. There have been extensive assertions regarding the benefit of an equitable wage structurein the economy as the proponents of this theory suggests that equity in wage distribution ensuresgreater welfare of the people in the workforce in general. However, there are opinions against
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3HUMAN RESOURCE ECONOMICS this theory as many of the contemporary economists and business planners propose a model ofpay for performance. According to this model, a part of the incentives or wage structure of theemployees should be determined by the level of productivity and performance of the employees.This, as asserted by them, gives the able employees to work more and increases their willingnessto be productive and competitive in a fair way, which in turn may lead to an increased efficiencyin the productive activities of the firms. This scope, however, is absent in the equitable wagetheory (Dunlop & Segrave, 2016). This theory of pay for performance is related to the economic concept of efficiency wage,which suggests that it may be beneficial for the firms to pay a higher wage to their workers.According to this theory, that can increase their loyalty, devotion and willingness to produce andtherefore can increase the efficiency of the workers and the firms as a whole in the long run. However, there are debates regarding whether efficiency wage theory or the notion of payfor performance are actually profitable for the firms and if so till what extent the wages shouldbe increased such that it increases the productivity of the workers without having any negativeimplications on the firms’ profit and prospects. The economic concept of the backward bendinglabor supply curve is similar to this notion (Thuy & Flaaten, 2013). This theory suggests thatthere is a tradeoff between the labor hours and the time for leisure for the workers and if wagesare increased above a certain level the willingness of the workers to work more actually reducesas the workers tend to substitute labor hours with more leisure. There are extensive literary works related to the different theories, propositions andcounter propositions prevailing regarding the wage structure and the viability of the efficiencywage theories and pay for performance concept, which are discussed in the following section.
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