Master thesis in the field of economic sciences
Bahman 1392
Abstract:
In recent years, the wage-efficiency theory has provided an obvious explanation for involuntary unemployment and the difference in wages. The main idea of ??this theory is that wages have a role other than clearing the market. For empirical and theoretical reasons, it seems necessary to have a mechanism by which the wage-efficiency model can be practically and correctly substituted for the traditional payment methods in Iran's factory industries. According to the wage-efficiency theory, paying a wage higher than the market equilibrium level attracts the best labor force in terms of productivity. The purpose of this research is to identify the relationship between wages and labor productivity in the industrial sector of Iran. For this purpose, using the data of Iran's factory industries in terms of four-digit codes during the period 1375 to 1387 and the consolidated data method, we have investigated the relationship between wages and labor productivity. The obtained results indicate that, on average, in 61.07% of industries, productivity has no significant relationship with the wages paid to the workforce, and factors other than wages are effective in the productivity level, and in 38.93% of industries, this relationship is significant, and productivity is proportional to the wages paid. Hence, the need to reform the policies that harmonize the productivity of the labor force with the level of paid wages, along with other ways of improving productivity, seems necessary, so as to increase the profitability of industrial enterprises along with improving the productivity of the labor force. It is also possible to increase the necessary skills to increase labor productivity in industries where productivity is not proportional to wages through necessary training. According to other results, on average, in 67.18 percent of Iranian industries, the trend of industry efficiency in terms of wage changes in the industry sector has been positive and significant, and in 32.82 percent of industries, the relationship between industry efficiency and wages paid by that industry is in the opposite direction and is not synchronized in one direction, and the efficiency of industries is not proportional to the wages paid by them.
Key words: wages – efficiency – Factory industries – workforce – Consolidated data – Wage-Efficiency Theory
Chapter One
General Research
Introduction
New Keynesian economists are more inclined to the theory called Wage-Efficiency. The main idea of ??this theory is that wages have a role other than market settlement and are used to explain the possibility of failure of the market settlement mechanism (Rosen and Moen [1], 2006). For the first time, Liebenstein[2] (1857 and 1958) expressed the issue of efficiency wages. That is, if companies pay higher wages, higher wages will motivate workers and attract higher productivity from them. This hypothesis had a great influence in the study of Shapiro and Stiglitz [3] (1984). Wage-efficiency theory is an obvious explanation for involuntary unemployment. In their study, Shapiro and Stiglitz used Liebenstein's model to explain non-official unemployment. In recent years, this theory has addressed the issue of why wages are sticky and companies (despite the existence of a queue of applicants) do not want to reduce wages. In order to motivate employees, employ skilled labor or retain their employees, companies may raise wages at a level higher than the level of the market clearing wage (Rosen and Moen, 2006). Much recent discussion has focused on the reasons why it is not possible for prices to adjust in certain markets, especially labor markets, to eliminate excess supply. The essential feature of the wage-efficiency theory is that the productivity of a company's workforce increases when their wages increase (Malcomson [4], 1981). The effect of wages on labor productivity can explain the failure of the firm to reduce wages despite the excess supply of labor. Even if this reduction causes the cost of the company to decrease, if the theories are correct, the efficiency of the workers and the profit of the company will also decrease. Traditional theories and wage-efficiency theory both accept the existence of a positive correlation between wages and efficiency, but the direction of influence is different between these two theories. The return of wages to efficiency expresses the wage of efficiency and the return of efficiency to wages shows the traditional theory of wages (Suri et al., 2007). In principle, wage-efficiency is a theory according to which wages will be paid above the equilibrium wage level and the best workers can be hired for the company.. In principle, wage-efficiency is a theory according to which wages will be paid above the equilibrium wage level and the best workers for the company can be hired who have higher productivity than most workers.
In order to investigate the wage-efficiency theory, in the second part of this research, the empirical evidence of different wage-efficiency patterns in different countries is stated and in the third part, the theoretical analysis of wage-efficiency theories is given. In the fourth part, the method of estimating the experimental model of this research and its results are stated. Finally, in the final part, the discussion, conclusions and suggestions have been discussed. Mankiw [5] (2002), believes that high wages reduce labor turnover. Workers leave jobs for many reasons, to find better jobs in other firms, to change careers, or to move to other sectors of the economy. The more a company pays its workers (assuming that the wages are fair (Ebadi, Pasbani, 2013), their motivation to stay in the company increases. By paying higher wages, the company reduces the frequency of separation from the work environment, and in this way, less time is spent on recruiting and training (apprenticeship) new workers. If a firm cuts wages, the best workers can leave it and find jobs elsewhere. As a result, the firm is left with less skilled workers who have lower costs. By paying a wage higher than the market equilibrium wage, the firm can improve the average quality of the workforce and thereby increase productivity (Mankiw, 2002). is that a wage above the market-clearing level improves worker effort. According to this theory, firms cannot fully observe the work effort of employees because effort is a discretionary variable and employees must decide for themselves how hard to work. Workers can choose to work hard, or to relax. They can continue at their own risk to be fired. The firm can increase the worker's effort by paying wages above the market clearing level. The higher the wage, the more it costs the worker to be fired. By paying higher wages, a company encourages more employees to work, and as a result, productivity increases.
In the wage-efficiency theory, it is stated that reducing wages is not necessarily in the company's favor, because reducing wages may not only not reduce the costs of the company, but also impose other costs, and on the other hand, it will reduce the amount of effort of workers and thereby reduce productivity. This causes a positive relationship between wages and productivity. In the current research, the Solow model [6] (1979), the underwork model (Shapiro-Stiglitz, 1984 and Biolo and Summers [7], 1986), the fairness model (Akerlof [8], 1982 and 1984 and Krueger [9] and Summers, 1986), the labor turnover model (Salop [10], 1979 and Stiglitz, 1984 and 1985), adverse selection model (Stiglitz, 1976 and Weiss [11], 1980) and... will be mentioned. Anyway, each of these theories seeks to explain the prevailing conditions in the labor market so that they can present the reasons for the existence of involuntary unemployment in the labor market. In this research, an attempt has been made to analyze the relationship between wages and labor productivity in Iran's industrial sector, and to find out to what extent and in what direction these two components are related to each other, and if this relationship does not exist in a favorable way, what are the ways out of it? It seems necessary to improve productivity and thus increase the level of production. Therefore, by determining the positive relationship between productivity and wages in Iranian industries, it is possible to provide a basis for increasing the productivity and effort of the workforce.