Reasons behind the Fact That Why Are Some Workers Paid More Than Others - Essay Example

Running head: REWARD MANAGEMENT REWARD MANAGEMENT [Name Of student] [Name Of institution] REWARD MANAGEMENT INTRODUCTION As a solution to the ever changing and emerging global pressures, organizations are altering their core structures as well as theirmanagement systems. Consequently, employee management has undergone a radical change in the past decades. With the ongoing chnages in the labor market, many organizations are reforming their employee reward strategies to better cope with the novel realities. The endemic tendency for the British economy to generate increases in earnings in excess of both increased output per head and inflation has been the root cause of its weakness. Incomes policies were repeatedly used as a remedy until the end of the 1970s. From 1979 the Conservative government left pay in the private sector to employers who were seen as the best judges of what could be afforded. (Bayliss 1993) A principal feature of the 1979 incoming government's economic philosophy was the belief that the British economy would benefit from less intervention. One of the first acts of the Conservative programme of deregulation of the labor market was the abolition of explicit incomes policies from mid-1979 (Booth, 1998). With wage-setters released from this constraint and seemingly 'free to choose' in their decision-making, policy-makers intended that the ability to pay should feature more strongly in wage outcomes. AIM OF PAPER In this paper I will explore the reasons behind the fact that why are some workers paid more than others? The discussion will include perspectives from the labor market; the institutional role of state; and the firm’s wage system and wage structure. ECONOMICS Reward management deals with the formulation and putting into practice strategies and policies the sole aim of which are to reward employees justly, equitably and in perfect harmony and consistently with respect to their value and worth to the organization and further, to assist the organization to reach its strategic target. With the General Theory, Keynes required to expand a theory that could clarify the strength of mind of aggregate output - and as an outcome, pay. He posited that the shaping issue to be aggregate demand. Among the innovative concepts commenced by Keynes was the idea of a demand-determined balance wherein idleness is feasible, the ineffectiveness of price suppleness to cure joblessness, a unique hypothesis of cash based on "liquidity predilection", the opening of radical indecision and expectations, the trivial efficiency of asset schedule flouting Say's Law (and as a result overturning the savings-investment causation), the likelihood of using administration economic and financial policy to help eradicate recessions and manage financial booms.  The importance of employee management cannot be undermined if the organization aims to succeed in today’s cutthroat competitive environment. Also, it cannot de denied that employees are the basic building block of any organization. It is vital for the organization to reward and manage its basic resource in the best possible manner in order to derive maximum benefit from it. (Farber, 2001) It has been observed that over the past few decades there have been significant shifts in the trends in the labor market. This has had its due impact on the way organizations reward and manages their work force. However, what has remained unaltered in all these years is the basic fact that a proper and fair reward management system: constitutes an economic exchange is imperative in forming an employee’s perception of fairness teaches employees values growth and boost in overall performance for fair incentivizing particular types of performance. (Booth, 1998) HUMAN CAPITAL THEORY The human capital point of view is that it can be observed as general terms, such as the aptitude to interpret and write, or in detailed terms, such as the attainment of a meticulous skill with a inadequate business application. Critics of the hypothesis disagree that it is complicated to disconnect human capital investment from individual expenditure. (Burchill, 1979) It would be too great a task to develop a new perspective for psychologists in understanding the labor market in this paper, so discussion will be limited to giving a few thoughts as to where a fruitful search for enlightenment might start. Mainstream economic theories are unhelpful for a number of reasons. In the first instance, most economic theories of the labor market are more interested in explanation at the macro level, whereas a psychological interest will be more interested in phenomena at the individual and small-group level. And whereas economists are more interested in the effects of the human psyche on economic behavior, the study of psychological well-being is more concerned with the opposite relationship, the effect of the economy on the individual. (Garen, 1994) However, one theoretical perspective that might provide a bridge between psychological and socio-economic studies of the labor market is labor market segmentation theory. Rather than starting from the mainstream economic premises that all 'agents' in the labor market are essentially profit- or wage-maximizing decision makers, differing primarily in the education (or 'human capital') and intrinsic ability they bring to the labor market, segmentation theory attempts to understand the labor market as a social phenomenon. (Booth, 1998) Within that paradigm the expectations and power that different individuals and groups bring to the labor market are seen as being of central importance. Some groups (a 'primary segment') obtain and retain powerful positions in the labor market because of their individual and collective (through trade unions, professional associations, etc.) behaviour. They are typically employed by firms in stable or expanding product markets, using economies of scale and modern mass-production techniques. Such firms actively seek to reduce labor turnover by creating 'healthy' employment environments conducive to high levels of motivation and low levels of turnover (Lazear, 2001). However, other groups of employees, because of the weaker bargaining positions that they come to the labor market with, tend to be employed by less profitable firms where lower wages, poorer conditions and worse job security and promotion prospects are the norm (women and ethnic minorities are sometimes held to be synonymous with the term 'secondary segments'). THE WAGES FUND THEORY Since the large mainstream of the wage-earning course group are laborers engaged by employers for a revenue, the quantity of wealth dedicated to the imbursement of wages is largely determined by the commandment of boost of capital. Hence, given that capital is the consequence of economy, the wages-fund must be permanent separately of the discussion among entity employers and laborers as to the wages that the previous are to give the second. As we have seen, the establishment of the entire theory consists in the imaginary freedom of two facts, (1) "discounts," the progression by which capital is enlarged, and (Camb, 1994) (2) the dialogue between employers and engaged by which the salary of particular laborers are set. If (1) is in total uninfluenced by (2), it will definitely pursue that though the labors of scrupulous laborers to get elevated wages may be unbeaten, it can only be at the disbursement of other laborers; and likewise, though exacting capitalists may hit down their workmen to a inferior wage, the cash they thus set aside, being destined intended for prolific employment, must in the end take the figure of earnings of other laborers. (Lazear, 2001) INSTITUTION- THE STATE NATIONAL MINIMUM WAGES (i) By sex, the wage gap has declined for women, but remained roughly stable for men so that, by the late 1990s, the union wage gap was higher for men than for women. The rate of decline in women's union premium is underestimated in F&M's restricted sample but is still apparent. (j) By age, the U-shaped relationship apparent in the 1970s has disappeared because there has been a precipitous decline in the premium for the youngest workers, while the older workers' wage gap has remained roughly constant. In the full private sector sample, young workers still benefit most from unionization, though this is not apparent in F&M's restricted sample. (k) (Bryson, 2001) By tenure, as in the case of age, the U-shaped relationship between tenure and the union premium apparent in the 1970s has disappeared, because low- and high-tenured workers have seen their wage gap fall substantially while middle-tenure workers have experienced a stable union wage gap. Now, it seems the premium declines with tenure (Farber, 2001). By education, the lowest educated continue to benefit most from union wage bargaining, but not to the same degree as in the 1970s. Although the trend is not so apparent in F&M's sample, the wage gap has fallen most for high school dropouts. (m) By race, a three-percentage point gap has opened up between the union premium commanded by nonwhites and the lower premium for whites. (n) By occupation, the union premium has collapsed for non-manual workers. Despite some decline in the premium for manuals, their wage gap was 17 percentage points larger than that for non-manuals by the late 1990s (Bryson, 2001) (compared with only five percentage points in the 1970s). (o) By region, the wage gap remains largest in the West and the South though, in F&M's sample, there is no difference in the premium in the South and Central regions. The wage gap remains smallest in the Northeast. (p) By industry, the wage gap remains largest in construction and smallest in manufacturing. The decline in the differential was particularly marked in services. We return to industry differentials later. (Garen, 1994) Two points stand out from these analyses. First, no group of workers in the broader private sector sample has experienced a substantial increase in its union premium. Indeed, the only group recording any increase at all is those aged 45-54 whose premium rose from 13 percent to 14 percent. Clearly, unions have found it harder to maintain a wage gap since F&M wrote. Second, with the exception of the manual/non-manual gap, those with the highest premiums in the 1970s saw the biggest falls, so there has been some convergence in the wage gaps. (Lazear, 2001) WHITLEYISM It was seen in New South Wales’ shoe-making business, employers and unions did concur to bring in Whitleyism in 1919. Joint groups also survived at Broken Hill Associated Smelters (BHAS, Port Pirie) and in Pelaco. From 1917 BHAS at Port Pirie had quite a few committees, with selected workers' council, to handle welfares programmes such as a accommodating store. The results were focus to veto by the General boss. (Garen, 1994) There was labor disparagement that the Co-operative assembly was undertaking legitimate jobs of trade unions and the worker council were too close to organization. Workers did vote for unionists to the committee. These legislative body supposed that a union say was compulsory if works-based unions were to stay behind appropriate and protected some perfections in corporation benefits. The committee structure at BHAS 'gave human resources a sense of sharing without drastically altering administration power. (Stagier, 2001) In broad, the competence wage class of models highlights circumstances under which worker/firm the level of wages influences innovation levels. The virtual wage variant modifies the approach to underscore the consequence of relative wages and continues that firms find it in their significance to pay workers privileged relative wages to amplify production levels. The avenues by which virtual wage movements change production have been distinguished in at least three related customs. FIRM – THE STRUCTURE OF GRADE JOB EVALUATION The idea of competitive labor marketplaces leads customary financial theorists to understand empirically pragmatic wage differentials (positive or negative) as reimbursement for whichever non-peculiarly income gears similar to working conditions, fitness damage, enjoyment or employment steadiness or divergences in human capital assets. (Camb, 1994) By using employment evaluation to evaluate each job, or a set of standard jobs ambassador of all jobs, the different jobs can be displayed in ascending array of their job appraisal or points. The subsequent step is to break up the jobs into sets where every group contains situation with a parallel integer of job points. These groups outline the foundation on which entity grades in the organization are built. There is no enchantment method for formatting where the limits amid groups should fall, and is perhaps best ready by examination to observe where normal breaks between groups of jobs emerge. Where such momentous gaps do not survive, the jobs with general features as designated by the job evaluation factors are set so that a obvious difference can be made among the distinctiveness of the jobs in diverse groups. Persisting business and professional wage differentials can be elucidated. Empirically pragmatic wage differentials do not consequently challenge the competitive labor market form, but are mandatory for the true balance. PRP SYSTEMS The fairly recent upsurge in interest in PRP systems has been in part driven by political concerns about rising unemployment and competitiveness. Indeed many commentators have identified PRP with more flexible labor markets and assumed a causal link between flexibility and increasing employment creation (Camb, 1994). At the theoretical level the introduction of PRP systems is underpinned by problems with monitoring workers, identifying ex ante workers quality, and effort levels. Briefly, the firms choice of adopting a PRP system relates to weighing up the costs of designing and implementing an appropriate output-pay system versus the savings derived from reduced supervisory costs. A critical assumption of such models is that the design and implementation costs are fixed. Thus there are decreasing per unit costs of PRP in larger firms with more workers. A further issue is that of worker motivation and wage profiles. For example, alternative payment systems can be offered to motivate workers with long expected in-firm tenures. This is the classic deferred compensation, or wage-age profile (Garen, 1994). On the identification and measurement of output we are, by implication, more likely to observe PRP in occupations and job settings where managers can readily appropriate output to indviduals or groups of workers. In particular, job repetition has been empirically identified as a fundamental determinant of the usage of PRP system. Further, and given the relatively higher job turnover in tedious employment settings, there is also a causal link with shorter expected job tenures which obviates the usefulness of deferred compensation schemes. The industrial relations literature, in particular that related to Total Quality Management (TQM), also questions whether it is in a firms' interests to adopt PRP where a key feature of the product/service is quality. Implicit in this contention is that PRP encourages quantity rather than quality. (Chrystal, Lipsey, 1999) Thus PRP is more suited to standardized products than highly differentiated or bespoke products. Finally there is an important strand of literature which deals with embeddedness or resistance to change. Here lengthy job tenure combined with widely accepted working practices makes it particularly difficult for firms to switch from time rates to PRP systems for fear of sparking off industrial action or at least a decline in general industrial relations. Importantly this is equally valid for management and workers. Drawing on the literature we can derive five testable hypotheses given the nature of our data. These are: H1: There is a positive relationship between firm size and PRP. H2: Workers with long expected in-firm tenure will not choose PRP. (Burchill, 1979) H3: Job repetition, and ease of measurement will encourage the use of PRP. H4: There will be a negative relationship between product/service quality and PRP. H5: Worker embeddedness prohibits the introduction of PRP systems. (Lazear, 2001) On job tenure, three empirical tests are offered, the first relates to employment contracts, the second to employees perceived job security and the third to job tenure. In Belgium absolutely no differences are found on any of these three variables between PRP and time-rate workers. For The Netherlands no differences are found with one notable exception, that of permanent contract workers. Paradoxically, it was found that workers on permanent contracts (i.e. those with long expected tenure) are significantly more likely to use PRP systems. These type of results bring into question the validity of the theoretical assumptions, at least for the two countries considered here. Certainly it must be considered why the tenure-compensation link has not been identified in this case. No identifiable link was found between job repetition or ease of measurement and PRP. The same was also true for product/service quality and the assumed intransigence engendered by well-established norms of production. (Chrystal, Lipsey, 1999) Areas in which there were identifiable differences were on marital status and gender, educational levels, and industrial relations. In Belgium, for example, workers who had split from their respective partners were considerably more likely to use PRP, as were male workers in The Netherlands. Further, workers educated to degree level had a 5% lower probability of PRP in Belgium only. No educational effects were apparent in The Netherlands. (Garen, 1994) On industrial relations, substantial effects and also differences across the two countries were found. In Belgium PRP workers were more likely to be involved in workplace consultation over change, a feature which was more evident for time-rate workers in The Netherlands. In both countries PRP workers were significantly more likely to be able to choose their order of work. For The Netherlands only, PRP was more associated, paradoxically, with direct control from the boss and less associated with on-the-job learning. (Burchill, 1979) CONCLUSION Beneath the relative wage alternative of the competence wage prose a mount in relative wages leads some unimportant workers to augment effort levels and thus augment their efficiency. on the other hand, as a ascend in one relative wage wants an equal and conflicting descend in other relative wages, parallel marginal workers might cut effort levels and in this manner dwindle their output. One of the better-known point of view for firms to compensate competence wages is the shirking mold (Chrystal, Lipsey, 1999). Under this form, workers have carefulness over their attempt while on the work. In place of endeavor, workers enjoy spare time by shirking. Therefore, where the expenses of shirking are elevated, the firm may have an enticement to pay amplified relative wages. Likewise, the gift exchange models upholds that workers have direct their attempt. To enlarge production levels, organizations may pay superior relative wages. In thankfulness, workers augment their effort. lastly, the labor turnover model too goes after a comparable structure (Garen, 1994). Given that the expenses of labor income are elevated, firms have an enticement to pay increased relative earnings to continue their labor force. Amusingly, one characteristic of this text yet to be addressed is whether the imagined replies are symmetric. For illustration, under shirking concerns, regularity would necessitate not only that workers who get higher qualified wages are confident to shirk less, while human resources who get lower relative wages are provoked to shirk further, but that these answers be of alike degree. Such regularity, however, is mismatched with the literatures of other regulations. Therefore, the comprehensive penalties of relative wage changes depend on the relative enormity of these responses. REFERENCES Abowd, John M., Francis Kramarz, and David Margolis. "High Wage Workers and High Wage Firms." Econometrica 672 (March 1999): 251-333. Booth, A. L. and Frank, J. (1998) Earnings, productivity and performance related pay, Journal of Labor Economics, 17(3), 463-77. Bratsberg, Bernt and James E Ragan. "Changes in the Union Wage Premium by Industry - Data and Analysis." Industrial and Labor Relations Review 56 (October 2002): 65-83. Bryson, Alex. "Employee Voice, Workplace Closure and Employment Growth." London: Policy Studies Institute Research Discussion Paper No. 6, 2001. Burchill (1976) Introduction to payment system and pay structures with a note on productivity Camb, Cartier: The transaction costs and benefits of the incomplete contract of employment J. Econ..1994; 18: 181-196 Card, David. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis." Econometrica 64 (July 1996): 957-79. Chrystal, Lipsey: Economics for Business and Management, Oxford University Press; 9 Sub edition (May 1999) 722 pgs. Drago, R. and Heywood, J. S. (1995) The choice of payment schemes: Australian establishment data, Industrial Relations, 34, 507-31. Edwards, P., Collinson, M. and Rees, C. (1998) The determinants of employee responses to total quality management: six case studies, Organization Studies, 19(3), 449-75. Eisenhardt, K. M. (1998) Agency and institutional theory explanations: the case of retail sales compensation, Academy of Management Journal, 31,488-511. Farber, Henry S. "Notes on the Economics of Labor Unions." Working Paper 452, Princeton University Industrial Relations Section, 2001. Fernie, S. and Metcalf, D. (1997) (Not) Hanging on the telephone: payment systems in the new sweatshops, Centre for Economic Performance Working Paper 891, London School of Economics. Garen, J. (1994) Executive compensation and principal-agent theory, Journal of Political Economy, 103, 1175-99. Heywood, J. S., Hubler, O. and Jirjahn, U. (1998) Variable payment schemes and industrial relations: evidence from Germany, Kyklos, 51, 237-57. Horn, John T. "Unions, Firms and Competition: The Effects of Foreign Competition on Unionization and the Impact of Unions on Firm Investment." Harvard University, 1998. Lawrence, Colin and Robert Z. Lawrence. "Manufacturing Wage Dispersion: An End Game Interpretation." Brookings Papers on Economic Activity 1 (1985): 47-116. Lazear, E. (2002) Why is there mandatory retirement? Journal of Political Economy, 87(6), 1261-84. Lazear, E. (2004) Salaries and piece rates, Journal of Business, 59(3), 405-31. Leonard, Jonathan S. "Unions and Employment Growth." Industrial Relations 31 (Winter 1992): 80-94. Lewis, H. Gregg. Unionism and Relative Wages in the United States. Chicago: University of Chicago Press, 2003 revised edition. Melling, Johansson: The Roots of Consensus: Bargaining Attitudes and Political Commitment Economic and Industrial Democracy.1995; 16: 353-397 Mellow, Wesley and Hal Sider. "Accuracy of Response in Labor Market Surveys: Evidence and Implications." Journal of Labor Economics 1 (October 2002): 331-44. Staiger, Robert W. "Organized Labor and the Scope of International Specialization." Journal of Political Economy 96 (October 2001): 1022-47. Waddoups, C. Jeffrey. "Unions and Wages in Nevada's Hotel-Casino Industry." Journal of Labor Research 21 (Spring 2000): 345-61. Wooden, Mark and Hawke, Anne. "Unions and Employment Growth: Panel Data Evidence." Industrial Relations 39 (January 2000): 88-107. APPENDIX TABLE 1. SAMPLE STATISTICS Legend for Chart: A - Variable B - Belgium PRP C - PRP No PrP D - Netherlands PRP E - Netherlands No PrP A B C D E Male 66.7 60.1 72.6 63.7 Age 39.3 37.4 33.8 37.7 Married 60.0 58.2 58.1 63.4 Single 25.3 23.1 17.7 20.7 Cohab 4.0 8.6 16.1 10.5 Divorce 2.7 7.8 4.8 3.8 Split 5.3 1.1 1.6 0.0 Widow 2.7 1.2 1.6 1.5 Kids 30.7 39.1 45.2 41.7 Degree 46.7 39.7 29.0 35.1 A Level 64.6 50.5 56.5 51.6 O Level 12.6 9.9 14.5 13.4 SE 44.0 24.4 29.0 11.1 FCE 2.7 6.7 9.7 10.2 PE 50.7 62.3 59.7 73.3 TCE 1.3 2.2 0.0 3.1 APP 0.0 0.9 0.0 0.4 Agri 1.3 1.6 Manuf 32.0 21.0 Const 4.0 21.0 Retail 26.7 24.2 Cater 6.7 6.5 Trans 1.3 4.8 Estate 13.3 6.5 Othser 14.7 11.3 Man 8.0 17.7 Prof 12.0 3.2 Tech 9.3 8.1 Clerk 6.7 6.5 Sales 21.3 17.7 Craft 24.0 25.8 Oper 8.0 8.1 Unsk 10.7 11.3 Size 0 25.3 6.5 Size 5 28.0 12.9 Size 30 12.0 30.6 Size 75 4.0 6.5 Size 300 10.7 17.7 Size 500 17.3 22.6 Tenure (years) 11.3 11.6 8.5 11.0 SOLVE 93.2 79.9 89.8 91.7 DECISION 54.8 50.4 66.1 71.5 DIRECT 26.4 33.6 32.8 21.1 NORMS 43.2 29.2 48.3 41.7 ORDER 86.5 70.9 85.2 78.5 METHOD 90.7 80.3 88.5 80.5 LEARN 78.4 65.0 77.0 79.4 CONSULT 39.2 29.4 58.1 62.1 SHORT 21.6 22.2 37.1 31.3 QUALITY 87.5 77.2 81.7 87.5 HOME 25.7 13.6 18.0 6.7 TABLE 2. EMPIRICAL RESULTS FOR HYPOTHESES 1 TO 5 Legend for Chart: B - H1 C - H2 D - H3 E - H4 F - H5 A B C D E F Belgium +ve 0 0 0 0 Netherlands +ve -ve 0 0 0 Note: +ve indicates theory is empirically validated, 0 indicates no evidence, and -ve indicates theory is empirically disproved. TABLE 3. PROBIT ESTIMATES FOR PRP Legend for Chart: A - Personal demographics B - Netherlands Beta C - Netherlands SE D - Belgium Beta E - Belgium SE A B C D E Male 0.03 0.01 -0.01 0.02 Age 0.00 0.00 0.00 0.00 Married 0.00 0.02 0.01 0.02 Single -- -- -- -- Cohab 0.03 0.02 -0.03 0.02 Divorce 0.00 0.03 -0.03 0.02 Split -- -- 0.24 0.11 Widow 0.03 0.06 -- -- Kids 0.00 0.01 -0.03 0.02 Education Degree -0.02 0.02 -0.05 0.03 A Level -0.02 0.02 0.04 0.03 Sector NO NO YES YES Employment Contract Self employed -- -- -- -- Fixed -0.04 0.02 -0.02 0.03 Permanent -0.06 0.03 -0.01 0.02 Temporary -- -- 0.33 0.21 Firm size 0 -0.19 0.02 -0.04 0.02 1-9 -0.02 0.02 -0.03 0.02 10-49 0.02 0.02 -0.04 0.02 50-99 -0.01 0.02 -0.02 0.02 100-499 -2.07e-06 0.02 0.00 0.03 Occupation Legman 0.00 0.03 -0.03 0.03 Professional -0.01 0.03 0.04 0.05 Technical -0.01 0.02 0.05 0.06 Clerical -0.02 0.02 -0.02 0.03 Sales -0.01 0.02 -0.02 0.02 Craft -0.01 0.02 0.04 0.04 Oper 0.00 0.03 0.07 0.06 Working conditions Solve 0.00 0.02 0.02 0.03 Decision 0.00 0.01 -0.02 0.02 Direct 0.02 0.01 0.00 0.02 Norms 0.00 0.01 0.01 0.02 Order 0.02 0.01 0.04 0.02 Method 0.01 0.02 0.00 0.03 Learn -0.02 0.01 0.02 0.02 Consult -0.02 0.01 0.04 0.02 Short 0.01 0.01 -0.02 0.02 Quality -0.02 0.02 0.01 0.03 Home 0.03 0.03 0.05 0.03 Tenure 0.00 0.00 0.00 0.00 Security 0.00 0.01 -0.03 0.02 N obs. 623.00 582.00 Chi2 61.45 89.9 -2LL -123.09 -125.54 Pseudo R2 0.20 0.27 Read More