Impact on Wages of Employer Sponsored Training - Research Paper Example

The impact on wages/salaries of employer sponsored training compared to investment made by employees in their skills- Case Study of Chrysler Detroit Automotive Plant Name Institution The impact on wages/salaries of employer sponsored training compared to investment made by employees in their skills- Case Study of Chrysler Detroit Automotive Plant Introduction Training workers to improve their job performance and enhance productivity constitutes the primary growth strategy for Chrysler Detroit Automotive plant. The human resource management policies of most firms overestimate the relevance off sector-specific skills, but underestimate the productivity enhancing effect of on-the-job training skills (William, Terry, Lawrence & Kirk, 2004). Several researchers have analyzed the effect of training on workers’ wages and salaries based on the human capital theory. The relationship between increase in wages and productivity exhibits variation depending on whether the firm or the worker meets the costs of training. The changes in priorities and manufacturing processes have led to the realization that production flexibility could be achieved through skilled workers. Chrysler Detroit Automotive plant intends to enhance the knowledge of its workforce on the technical aspects of production in order to attain maximum effectiveness within the company (Lehto, 2010). The objective of most manufacturing firms is to create high performance organizations characterized by extensive recruitment, formal information sharing, labor participation programs, extensive recruitment, and selection and training procedures. Determination of Wages and Salaries in Chrysler Detroit Automotive Plant Chrysler Detroit Automotive plant considers several factors in determining the salaries and wages for its workers. The most common factors include demand for a certain type of labor, demand for the product, easy of substitution and elasticity. Labor is a vital factor of production, and its reward must be fully satisfied to ensure productivity. The demand for labor is classified as derived demand since it arises from the demand for the product; thus, products with high levels of demand will need high supply of labor during their production (International Labour Office, 2011). The demand for automotive products is currently rising in proportionate to increase in global population. The elasticity of demand for a given type of labor depends on the proportion of total costs accounted for labor costs. Chrysler Detroit Automotive plant is a labor-intensive industry; this implies that labor makes up a significant proportion of the total costs (Lehto, 2010). The automotive industry is competitive since there are companies producing substitute automotive products for the same market. Chrysler Detroit Automotive plant will significantly affect the demand for its products if it passes on the increased labor costs through increased prices for its products. The best way of recovering the costs of labor is by enhancing the productivity of the available labor through training. The Conflict between Collective Bargaining and the Economic Theory The primary objective of trade unions is to protect the interests of their members (Carrell & Heavrin, 2010). Workers’ interests conflict with the firms’ objectives in most cases as they seek to maximize their benefits regardless of the costs to the firm. The wages and salaries of the great majority of the working population are arrived at by a collective bargaining procedure. It is believed that the individual worker is in a weak bargaining position and the only way to remove this weakness is by forcing the employer to enter into negotiations with the representatives of the majority of the labor force. Collective bargaining has several bases for wage claims; these include wage differential, profitability, productivity arguments (Traxler & Brandl, 2010). These arguments try to eliminate the consideration of knowledge, skills, and experience from the process of determining the amount of wages and salaries. Trade unions argue that it is fair for workers doing similar jobs to get similar rewards since they have the potential for achieving similar productivity. Economic theories focus mainly on the costs of production when determining the amount of wages/salaries to pay workers. The efficiency wage hypothesis posits that employers pay their workers more than the market-clearing wage with an objective of increasing productivity and efficiency of the work force (Traxler & Brandl, 2010). Companies strive to reduce labor turnover in industries that are characterized by high costs of labor replacement. Alfred Marshall introduced the concept of efficiency-earnings to denote the pay per efficiency unit of labor. The Marshallian efficiency intended to make employers pay different amounts of wages and salaries depending on the efficiency of workers. The efficiency-earnings, therefore, would make managers pay higher wages to more efficiency workers than the less efficient workers (Ju, Lin, Wang & World Bank, 2011). The main sources of efficiency include training, skills, experience, and the knowledge the employees have acquired about the field of operation. The source of efficiency in this case does not affect the amount of wages since the efficiency does not differ depending on whether it is employer-sponsored or employees’ personal investment,. Economic implications of HRM policies and practices on the financial performance of Chrysler Detroit Automotive Plant Human resource management practices and policies have widespread impact on employee skills, which occur through the acquisition and development of the firm’s human capital (Carrell & Heavrin, 2010). The company’s recruitment procedures that focus on a large pool of skilled applicants backed by valid criteria for selection enhance the quality of employees that the company selects. During the service period, it is vital to provide formal and informal training experiences to further influence the growth and development of employees. The training that employees need to be offered includes coaching, management development, basic skills training, mentoring and on-the-job experiences. Proper transmission of knowledge and skills to employees is the only way businesses can survive in the modern business arenas characterized by complexity and dynamism. Workers participate in training programs and acquire several work-related skills by means of informal in-service training and experience. The empirical analysis measures this informal human resource development by proxies such as tenure and age of the workers (Carrell & Heavrin, 2010). Worker’s tenure indicates the skills a worker has acquired on the job and the age is a vital indicator of the general skills an employer has acquired while performing job tasks. Empirical studies show that the experience and skills of the workers contribute to their productivity, and this is indicated by the wages they earn. The workers’ earnings are characterized by life-cycle growth. The life-cycle earnings growth reflects institutional arrangements in the amount of salaries and wages than productivity gains accruing from improved skills. According to McLean, Hudson and Hudson (2012), manufacturers employ industrially experienced field personnel with the potential to work directly with firms to identify needs, develop proper assistance projects, and broker resources. Most manufacturers focus on the skills of prospective employees on the job that they are intended to perform. The amount of salaries that employers promise to pay their workers is directly proportional to their knowledge, skills, and experience in the position offered. Highly educated employees are paid higher salaries and wages than employees with limited knowledge and skills. However, if these employees upgrade their skills, they will definitely get increase in their salaries and wages. Companies committed to the principles of Total Quality Management focus on continuous improvement of the employees’ knowledge and skills. It is assumed that the longer the employer serves the organization, the more they acquire skills and knowledge on their fields of operation (McLean, Hudson & Hudson, 2012). The management teams have programs for salary increment with time such that a new employee joining the organization does not earn the same salary as the worker who has served the company for some years. Skills development enhances the effectiveness and efficiency of the workers with consequent increase in profitability. Hollingshead and Poole (2012) posit that the effectiveness and efficiency of even skilled employees may be limited if the organization lacks ways of motivating them. Skills development is one of the best ways of motivating employees since training promises employees that they will be productive even after they leave the company. Modern employees cannot continue to serve a company if they do not have hope for the future; therefore, business organizations must strive to satisfy the skills requirements of their employees if they need to retain their exceptional workers. Effect of employee-sponsored training on wages and salaries Employers believe that acquisition of relevant knowledge, skills and experience is a costly venture. The learning process is time-consuming, requires huge finances and sometimes tiring. An employee who has undergone across all the stages of the academic ladder will demand higher pay than those who have not completed. Employers also believe that a well-educated employee has adequate skills and knowledge to work towards ensuring efficiency and effectiveness in decision-making (Hollingshead & Poole, 2012). Additionally, these workers have the potential to assume responsibilities in strategic management, which is vital in organizational planning. These types of employees, therefore, must be rewarded higher than the employees at operational levels since their positions are sensitive to the firm. Effect of employer-sponsored training on wages and salaries When the employers provide training for their workers, they tend to participate more in workplace training. The objective of employers in sponsoring employee training is to enhance their efficiency in order to reduce costs of production. Most workers do not have sufficient capital for investing in their personal skills development. Employers prove vital in this case as they promote increased participation of the workers in training programs. Employer-sponsored training is positively correlated to changes in technological innovation, market competition and organizational changes (Traxler & Brandl, 2010). The three interdependent components of human capital include early ability, qualifications, and knowledge. Qualifications and knowledge are acquired through formal education while competencies and expertise acquired through training on the job. Lehto (2010) describes his experiences with small manufacturers when he studied firms trying to introduce activities for educating their staff on proper ways of improving their work practices. When a company empowers the workforce through cross training, chances are that this can be threatening to the owners and managers of the enterprise. The empowerment in itself implies that the company has enabled its workforce to make critical decisions or give those employees additional training for them to become more valuable (Carrell & Heavrin, 2010). The trained employees may demand additional payments or improved conditions of working. Considering the natural feature of the economy, the trained employees may go to seek employment elsewhere with the new training if the current employers cannot raise salaries and wages, or improve the working conditions. Therefore, training employers is associated with increase in salaries and wages for the workers. Conclusion Employers and employees share both the returns from and costs of general training (International Labour Office, 2011). The general training financed by the employee has a larger wage effect than the training financed by the current employer. Employee-sponsored training attracts exceptional workers to the company to enhance efficiency and effectiveness of the workers. Empirical results show that firms’ provision of training can lift workers’ participation significantly and promote productivity per unit of labor. The goal of collective bargaining conflicts with economic theories (McLean, Hudson & Hudson, 2012); this is because collective bargaining focuses on employee satisfaction while economic theories concentrate on minimizing the costs of production. As employers sponsor training for their workers, they should expect to increase their wages/salaries in proportionate to their knowledge and skills. Similarly, firms need to consider extra pay for employers with more self-sponsored training in order to compensate them the expenses and other costs of education. References Carrell, M. R., & Heavrin, C. (2010). Labor relations and collective bargaining: Cases, practice, and law. Upper Saddle River, N.J: Prentice Hall. Hollingshead, A. B., & Poole, M. S. (2012). Research methods for studying groups and teams: A guide to approaches, tools, and technologies. New York: Routledge. International Labour Office. (2011). Towards a sustainable recovery: : the case for wage-led policies. Geneva: International Labour Office. Ju, J., Lin, J. Y., Wang, Y., & World Bank. (2011). Marshallian Externality, Industrial Upgrading, and Industrial Policies. Washington, D.C: The World Bank. Lehto, S. (2010). Chryslers turbine car: The rise and fall of Detroits coolest creation. Chicago, Ill: Chicago Review Press. McLean, P. D., Hudson, F. M., & Hudson, F. M. (2012). The completely revised Handbook of coaching: A developmental approach. San Francisco, CA: Jossey-Bass, a Wiley imprint. Traxler, F. & Brandl, B. (January 01, 2010). Collective Bargaining, Macroeconomic Performance, and the Sectoral Composition of Trade Unions. Industrial Relations: a Journal of Economy and Society, 49(1), 91-115. William, A. W., Terry, W. L., Lawrence, B. C., & Kirk, W. (2004). The effect of perceived ethical climate on the search for sales force excellence. Journal of Personal Selling and Sales Management, 24(3), 199-214. Read More