How firms use efficiency wages to raise employee productivity and how it explains wage stickiness in the labour market
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document in english
management
case study
date published 09/05/2008
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SummarySome firms will attempt to increase their profits by improving their worker productivity by paying a wage that is above the wage paid by other competing firms. A well known example of the gains from this sort of wage setting is found in third world economies. At the market level wage, workers may not get the necessary nutrients they require in order to carry out the working day’s hard labour and to maintain a healthy lifestyle. There is a vital correlation or interaction between a workers nutritional diet and their performance or productivity at the work site.
Table of Contents
- The economic rationale behind a firm making the decision to pay efficiency wages in the above scenario.
- Demonstrating and critically examining how a firm sets wages in order to maximize profits.
- Firms in today's economic environment also now decide on how much wages to pay their staff.
- This further depicts that the economic theory of efficiency wages does in fact hold in the literal labour market.
- Let one assume for instance efficiency wage theory has a diminutive marginal product as an explanation of wage stickiness.
- This is just one of many of the criticisms levelled against the theory.
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