Hello, my name is Stevie. I want to be a businessman that manage the wage of the workers, so I chose this topic about the wage. A measure of wages decides the productivity of workers. Do you agree this statement? It is called ‘efficiency wage theory’. The purpose of this presentation is to make you have better understanding of the efficiency wage theory. First, I will talk about the development of the theory and analyse the 3 factors that have contributed in its development. Second, I will explain the influence of the efficiency wages in economics, business and society. Third, the critics’ assertion will be also discussed. If you want to be a manager or employer, this theory could help you to manage your workers. If you have a question, please
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The term "efficiency-wages" was invented by Alfred Marshall, who was an economist in England. Marshallian efficiency wages make employers to pay different wages for workers who are of different productivity. However, the modern use of the term is quite different and refers to the idea that higher wages increase the productivity of the workers, which has been called efficiency theory. There are some factors that have contributed in the development of efficiency wage theory.
First, various studies have shown that workers who have sufficient nutrition are more productive than workers who are not. In other words, a more health worker will perform better for the firm. The economist John Strauss researched in an African country Sierra Leone. A ten percent increase in caloric intake among farm workers in Sierra Leone increases productivity by about 3.4 percentage points. Efficiency wage theory argue that the high wage will increase the productivity by the increase in the quality of their …show more content…
If a firm reduce the wages of their workers entirely, a worker who has the best productivity would want to leave the firm immediately because he has other outside opportunities. In other words, the splendid worker can select a firm which wage can satisfies him. Whereas, the workers who have the less productivity should work for the company continuously because they have no other outside opportunities. As a result, efficiency wages allow employers to pick the workers who have the great productivities from surplus of workers. Third, efficiency wages can reduce the monitoring cost. Monitoring cost arises from the tendency that workers act more lazily when there are no monitoring. As an example, assume that there are two companies, pizza hut and pizza heaven. Pizza hut would have high monitoring cost compared to the pizza heaven because it is a big company. However, it also should pay high cost in supervising a store. Therefore, it can be more efficient to hire workers at a higher wage and let them know that poor workers will be fired. Whereas, in the case of Pizza heaven, which is a local franchise, has lower monitoring cost because it is just small store and therefore doesn’t need to pay higher wages.
Moreover, efficiency wages can save employers from the turnover cost. Turnover cost can be very high for employers. Assume that 1000 workers in Apple would want to leave the firm because of
The term "efficiency-wages" was invented by Alfred Marshall, who was an economist in England. Marshallian efficiency wages make employers to pay different wages for workers who are of different productivity. However, the modern use of the term is quite different and refers to the idea that higher wages increase the productivity of the workers, which has been called efficiency theory. There are some factors that have contributed in the development of efficiency wage theory.
First, various studies have shown that workers who have sufficient nutrition are more productive than workers who are not. In other words, a more health worker will perform better for the firm. The economist John Strauss researched in an African country Sierra Leone. A ten percent increase in caloric intake among farm workers in Sierra Leone increases productivity by about 3.4 percentage points. Efficiency wage theory argue that the high wage will increase the productivity by the increase in the quality of their …show more content…
If a firm reduce the wages of their workers entirely, a worker who has the best productivity would want to leave the firm immediately because he has other outside opportunities. In other words, the splendid worker can select a firm which wage can satisfies him. Whereas, the workers who have the less productivity should work for the company continuously because they have no other outside opportunities. As a result, efficiency wages allow employers to pick the workers who have the great productivities from surplus of workers. Third, efficiency wages can reduce the monitoring cost. Monitoring cost arises from the tendency that workers act more lazily when there are no monitoring. As an example, assume that there are two companies, pizza hut and pizza heaven. Pizza hut would have high monitoring cost compared to the pizza heaven because it is a big company. However, it also should pay high cost in supervising a store. Therefore, it can be more efficient to hire workers at a higher wage and let them know that poor workers will be fired. Whereas, in the case of Pizza heaven, which is a local franchise, has lower monitoring cost because it is just small store and therefore doesn’t need to pay higher wages.
Moreover, efficiency wages can save employers from the turnover cost. Turnover cost can be very high for employers. Assume that 1000 workers in Apple would want to leave the firm because of