Human Resource Management: Wage Setting - Essay Example

Wage Setting Affiliation Wage Setting The players in the wage setting process When organizations are making decisions regarding wages of employees they have to take various factors into consideration. These factors affect the wage setting process in different ways. Organizations do not perform the activity of setting wages on independent basis, their wage setting decision is impacted by the individuals working within the organization, the unions that represent the individuals working within the organization, government and competitors. The wage setting procedure is highly dependent on the principle of individual vs. collective negotiation process. During the wage setting process, employers are involved in the act of directly bargaining with the employees of the organization. This process is recognized as individual wage negotiation process, in this processes the employee and the employer, directly negotiates with each other and determines the wage level. Employers even have to negotiate with trade unions while setting wages. Unions represent the workers working within the organization and they negotiate the wages of these workers with the employers. This process of negotiating wages is recognized as collective wage negotiation process. The difference between the wages of those employees bargain on their own and the wages of those employees that are represented by unions during negotiation is referred to as nonunion/union wage gap. It is mostly seen that employees that are represented by unions earn much more than those who stand alone in the bargaining process. Another important factor that an organization has to take into consideration while setting wages is the minimum wage level. Minimum wage level refers to the minimum wage rate set by the government of any jurisdiction. This wage level ensures employees that a certain amount of wage will be given to them by the employer, the employer can set its wages above this level. An employer can not set wages below the minimum wage level; otherwise the employer may face legal issues. While setting wages the organization has to ensure that internal equity. Internal equity refers to the fairness of the pay system, this means that people working in different departments at the same hierarchical level, putting in similar amount of time and effort and having similar skills should be paid equally. It is important to achieve internal equity as employees compare their salaries with the salaries of other employees of the organization who are of similar importance to the organization and who are investing same amount of effort and time for the success of the organization. Employers even have to compare their wages with the wages offered by their competitors and they have to try to achieve external equity (Bohlander, 2001, p.243). This means the employers have to pay similar wages as compared to the people working in other organization at the same hierarchical level, putting in same amount of time and effort. If an organization fails to achieve external equity, it may fail start losing its employees as employees tend to move to organizations that pay better for their skills. The Institutional Impact on Wage Setting Various institutions impact the process of setting wages differently; these institutions determine the difference between low income earners and high income earners. Unions are institutions that have majorly affected the wage setting process. Existence of unions and the practice of collective bargaining has led to better wages for employees, employees in countries where unionization is not exercised tend to be paid less than counties where unionization exist. Unemployment is expected to elevate if all employees are paid equal to what they produce, while no effect on employment is expected if the returns from production of employees is shared between the employees and the capital. The factors that determine the level of salary paid to employees include unionization. The effect of unions can be witnessed when the wage level is at equilibrium, this implies that in areas where unions are quite strong employees are paid equally in accordance to their skills and age groups and this results in lower wage dispersion. The overall idea is that when institutions are stronger, competition for wages is decreased and employees are not exploded by being paid less. This is because when employees join unions they agree to what the unions have to offer and when a number of employees will join unions together they will comply with the unions instead of competing with each other. Similarly, unions calculate the correct wage for employees while ensuring that the wages determined by them do not affect the employers in an adverse manner, thus wages are set in a way to satisfy both the employers and the employees. If a union is dealing with a plant, the union is in a more advantaged position, but if the union is dealing with the industry, the industry has the benefit. When different organizations of an industry join hands together they are in a more advantaged position. This is because when organization joins hands they eradicate the factor of competition and set similar wages. Due to this employees have lower options and the theory that states that employees work for those organizations that pay well loses its stand and employees have to accept what they are offered. On the other hand if different employees from different organizations of the same industry join a union body, they gain similar advantage as when organizations are bargaining as an industry. In such scenarios the advantage of industry wide bargaining may be lost by the employees as all the employees of the industry start bargaining together and have agreed to work on conditions that have been accepted by all the members of the unions. In such circumstances there are threats that industries might opt for shut down instead of agreeing to the demands of the employees and the unions and other institutions. Keeping this scenario in calculations, institutions try to strike a balance between the benefits of the employees and the employers and wages are set at a rate that is not too high for the organizations and not too low for the individuals working in these organizations. Changes In Distribution of Income There are several reasons that have led to changes in the distribution of income and have caused income inequality. One of the major reasons is the labor market itself, the labor market is based on the principle of demand and supply. This means: if the supply of labor for a particular position or a job is higher than the number of workers demanded, the wage paid for that particular job is lower. This is because several individuals compete for a similar job and are ready to accept lower wages in order to win the competition. Secondly, if the demand for a particular skills set is high and there is low supply of that particular skill set, the income or wage for that skill set will be high. This is because companies will be competing with each other and will be willing to pay high to obtain the skill set. Income inequality among different households is even increasing due to the process of wealth concentration. This means that those who are already rich are and will get richer at a faster pace than those who are poor and are trying to change their economic status. The process of wealth concentration states that those who already have money and are wealthy will invest in before and earn more income and save more. While on the other hand those who are paid less and fall in the category of poor will take more time to save and invest. Another reason of increase in unequal distribution of wealth is globalization. Due to globalization, companies situated in one end of the world have started outsourcing its work to countries situated in those parts of the world where labor is cheap. Due to this, these companies even offer lower wages to the workers of host nations and these workers perceive the offered wages as low. While on the other hand, those in other countries may see the same wage as quite high. The work gets outsourced and the unemployment in host countries increases. According to economic neoliberalism, decline in the power of the unions and decline in the number of people joining unions leads to economic in equality. This is because due to decline in unions, employers are able to manipulate employees and pay lower wages while the unions do not exist to help these employees and they are paid unequal wages. Recently organizations have shifted from wage system to profit system while compensating their employees. In wage system, salaries or compensation of employees are fixed and whether their productivity level increases or decreases, they are paid the same salary. In profit system organization pay employees according to the profitability of the company and the productivity of the employees. Several reasons back the formula of shifting from wage to profit compensation system. The profit compensation system increases the morale of the employees and they feel they are partners in business rather than employees and work hard in order o benefit the organization. References Bohlander, G. W., Snell, S., & Sherman, A. W. (2001). Managing human resources. Cincinnati, Ohio: South-Western College Pub. Read More