What is an Efficiency Wage?

Efficiency-wage refers to the above-average wages paid by employees to the market. Such wages can effectively motivate professionals and increase productivity and business performance. Therefore, such high wages are Efficiency wages, that is, the relative benefits of labor costs are highest at such wage levels. To put it simply, efficiency wages are an incentive and compensation system that companies or other organizations pay employees to pay much higher than the market average. Efficiency wages are not paid in accordance with the working efficiency of employees, but are paid to employees above the market average level to improve employee productivity.

Efficiency wage

Efficiency wage hypothesis, also known as efficiency-wage theory,

The microfoundations of the payroll hypothesis can be summarized as follows:

Avoiding shirking: Because the quality or value of the output of labor work is inestimable, the lack of work willingness of the labor may cause them to do less work or reduce the quality of work. In order to reduce losses, employers need to increase wages and create efficient wages. But this can also cause

Whether the efficiency wage can reduce the total labor cost in unit efficiency and become a real efficiency wage is restricted by a series of factors. In fact,

In the market economy, the way to implement efficient wages. In general, in order to implement efficiency wages, it is necessary to rely on a certain path to successfully implement

The establishment of a "good faith" talent market is the fundamental way to implement efficient wages. Efficiency wages require companies and talents to abide by their credibility, and to use each other's past experience and reputation as the basis for establishing a labor contract relationship. Fundamentally, the reason why efficiency wages are effective is that in the case of incomplete and asymmetric information, both sides provide a reliable signal to help companies or talents make selections and choices, and the effectiveness and success of signal transmission The rate lies in the degree of trust between the company and the talents. Both parties believe that the other party values reputation and abides by the principle of reciprocity. The development of China's labor market is still not perfect, especially the corresponding market order is still in the early stages of construction and there are no sound employees

Efficiency Wages Ford Motor Company

Ford Motor Company is both a technology innovator and a system innovator. What led to Ford's success in the automotive industry was not only the technological innovation of its assembly line application, but also the institutional innovation of its efficiency wage application.

At the beginning of the 20th century, the rapid development of American automobiles, automobile workers were highly mobile, which put pressure on the stable development of enterprises. Moreover, the strong demand of the labor market has also promoted the opportunism of workers in the labor process to a certain extent. In January 1914, Henry Ford began paying his workers five dollars a day. At that time, the prevailing wage was between 2-3 dollars a day, and Ford's salary was much higher than the equilibrium level. Job seekers lined up outside Ford's car factory, and there was almost rioting for jobs.

Efficient wage payments are above market levels

Henry Ford later recalled: "We want to pay these wages so that the company has a lasting foundation. We build for the future and low-wage businesses are always unsecured. Paying $ 5 for 8 hours a day is what we do One of the best things to reduce costs. "Reducing costs by paying high wages is obviously not in line with the logic of traditional economics. However, in fact, due to the increase in job stability brought about by high wages and the increase in labor productivity, costs have indeed decreased. A survey report at the time showed: "Ford's high wages got rid of inertia and resistance in life. Workers are absolutely obedient, and it is safe to say that since the last day of 1913, labor costs at the Ford factory have been Declining. "High wages have increased worker enthusiasm and increased corporate cohesion. Ford employees' resignation rates have dropped 87%, layoff rates have fallen 90%, and absenteeism rates have fallen 75%. High wages brought higher labor productivity. Ford's car prices were much cheaper than those of its rivals, and car sales rose linearly from 58,000 in 1909 to 730,000 in 1916.