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Efficiency of Highly Paid Labour - Research Paper Example

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The paper "Efficiency of Highly Paid Labour" discusses that the efficiency wage theory is based on the concept that businesses find it a worthwhile investment to pay wages above the average for that industry so as to draw the interest of a higher quality employee…
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Efficiency of Highly Paid Labour
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Download file to see previous pages By paying a higher wage than what is necessary according to a particular market standard is indeed a sound investment for a business rather than a baseless expense. According to Marshall, “highly paid labour is generally efficient and therefore not dear labour” (Marshall, 1890). The merits of increased payment as an incentive to employees are matters of debate. Other factors such as job satisfaction and opportunities for growth are also part of the equation, but the overwhelming modern bodies of work have clearly demonstrated that higher wages equal increased production. According to Smith, “Where wages are high, we shall always find the workmen more active, diligent, and expeditious, than where they are low” (Smith, 1776). This discussion will examine the plausibility of this statement including both the positive and negative aspects of higher wages.
The rationalisation of higher wage disbursements can be categorized into three main topics. The first two, adverse selection and sociological (fair-wage) are fairly straightforward and only require relatively little further explanation. The shirking model is somewhat more complex and will be discussed at greater length. Adverse selection simply maintains that by offering higher wages inherently increases the quality of the average job applicant thereby raising the quality of the average employee hired by the company. The sociological aspect asserts that higher wages build a stronger allegiance to the company among employees, therefore, increasing worker productivity. In addition, this greater feeling of alliance causes reduced turnover rates which lower recruitment and training costs. The shirking explanation is that higher wages reduce idleness and the numbers of instances that job assignments are completed ineffectively by raising the level of the personal detriment that losing that job would cause (Akerlof & Yellen, 1986). ...Download file to see next pagesRead More
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