Efficiency Wage

Knowledge Center



Summary, forum, best practices, expert tips and information sources.

 

Summary

What is an Efficiency Wage? Meaning.

Why are many employers paying salaries or wages above the minimal rate as determined in the market? The phenomenon  is explained by the economic concept called the Efficiency Wage hypothesis. Simply put, employers get more if they pay more: the increased labor productivity pays for the relatively higher wages.


Actually, there are multiple Efficiency Wages models (theories that explain why wages are often above a supply = demand clearing rate):

  • Inhibit Shirking. It is not easy to measure the quantity or quality of a worker's effort. There may be an incentive for employees to "shirk" (do less work than agreed). Managers may pay a premium in order to create or increase the cost of job loss, which gives a sting to the threat of firing. This threat can be used to prevent shirking (or "moral hazard").

  • Reduce Labor Turnover. By paying a premium, the costs can be decreased of searching, recruiting and training replacement workers, should an employee decide to quit and seek a job elsewhere.

  • Adverse Selection. Firms with higher wages might attract more able job-seekers. The employer can select the best.

  • Create a sense of Obligation. Efficiency wages may simply result from traditions. Higher wages encourage high morale and increases Organizational Commitment, which raises productivity.

  • Avoid unobserved ill discipline. In poor countries, efficiency wages may allow workers to eat well enough to avoid illness and Work Absenteeism and to be able to work harder and more productively.

  • Corporate Responsibility. The need or want to be fair or to be a good citizen of society.


Special Interest Group

Join

Efficiency Wage Special Interest Group.



Special Interest Group (12 members)

Forum

New Topic

Forum about the Efficiency Wage.


🔥 NEW Quotes on Salaries. Quotations
Hi, do you know of a remarkable, humorous quote by a famous person or a proverb related to paying (high) salaries?Please (...)
2
 
1 reactions
Best Practices

Sign up

The top-rated topics about the Efficiency Wage. Here you will find the most valuable ideas and practical suggestions.


Expert Tips

Sign up

Advanced insights about the Efficiency Wage. Here you will find professional advices by experts.


Information Sources

Sign up

Various sources of information regarding the Efficiency Wage. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


NewsVideosPresentationsBooksMore

Compare with: Opportunity Cost  |  Value for Money Audit  |  Cost-Benefits Analysis  |  Expectancy Theory  |  Two Factor Theory  |  Employee Attitude Survey

Special Interest Group

Are you interested in the Efficiency Wage? Sign up for free

Notify your students

Copy this into your study materials:

and add a hyperlink to:

Link to this knowledge center

Copy this HTML code to your web site:

 
 

Return to Management Hub: Ethics & Responsibility  |  Human Resources


More on Management  |  Return to Management Dictionary  | 

 

This ends our Efficiency Wage summary and forum.



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2021 12manage - The Executive Fast Track. V15.7 - Last updated: 22-1-2021. All names of their owners.