Efficiency Wage Theory Applied To Ademco Security Group In Essay.

You are hired by the Fair Work Commission Australia as a consultant to examine issues relating to pay and performance.  Your task is to provide a report detailing findings from the economic literature on the effectiveness of pay for performance, and how performance should be evaluated based on incentive pay. 

In the economic literature, the Efficiency Wage Theories focus exclusively on the relationship between pay and performance. The Efficiency Wage Theories (EWT) maintain that firms should offer their employees a wage that is above the market clearing rate. Paying employees a wage premium raises productivity, workplace cohesiveness, employee responsibility and loyalty, and reduces shirking. Conversely, a wage that is below the prevailing market rate can contribute to employee dissatisfaction and other negative attitudes (e.g. outrage and a desire for revenge), and ultimately a high turnover.

• You should aim to think criticallyand write originally.
• A key component of the assessment of the assignment will be based on your ability to explain your answers using the economic concepts and theorydiscussed in this unit. You will be rewarded for linking the theory with a real life example.
• You are required to research this topic. Use the readings on “Efficiency Wages”(in LMS) to build up your essay.

Efficiency Wage Theories and Pay for Performance

Wage rate plays an extensive role in analysing the work productivity of a particular individual. Various economical theories and aspects has been stated over the years, that deals in analysing the direct relation between the pay and the performance structure. This aspect has led various organizations to raise their productivity and has help them to be benefitted in the long run. Efficiency wage theory is considered as one of the vital theories in the field of economics that is based on this aspect.

The aim of this report is to analyse the economical aspect and theories regarding the supply of labour, their productivity and performable on the basis of their wage rate. Being appointed as the consultant by the Fair Work Commission Australia, in this report a complete analysis of the economical aspects has been stated. Following the explanation of the theories lies the firm to be dealt with in this study. The firm that has been taken into consideration is Ademco Security Group of Singapore. The main reason for the high turnover rate of the company has been analysed in the third section of the study and a recommendation has been provided in the end that would adhere to the issues of the organization.

`` According to Fair Work Commission (2017), Fair work commission is considered as the fair work Australia. An institution that deals with the Australian industrial relations deals with the fair work act 2009. It belongs to the RUD government’s reforms that help in addressing the industrial relations in Australia. The function of the firm is to analyse the settings and varying the industrial awards, fixing the minimum wage of the firm and resolving the disputes that exists between the firms. It aims at performing the functions of the firm that would be handling the claims with respect to unfair dismissal. This institution has been framed after the Australian industrial relations commission, though the firm performs the function that had been performed by the workplace authority and the Australian fair play commission.

Fair work play is an independent organization that has the power and the authority to regulate the provisions that are related in accordance with the minimum wages and employment of the firm. The firm focuses on the provisions for solving the disputes that right have occurs along with enterprise bargaining and the employment conditions of the labourers in the economy.

According to the economical theories, it could stated that labour supply deals with the total number of hours that the workers provide and they wish to provide in order to attain their real wage rate.  The labour supply of the firm is purely dependent on the wages that are fixed to them. In order to analyse the logic behind the supply of labour in economics, the labour supply curve could be taken into considerations (Cahuc, et al., 2014).

Backwards Bendy Supply Curve

The usual supply curves of a particular good or service being provided in the economy is an upward sloping curve, which shows a positive relation between the price of the product or service and the quantity supplied. As the price of the product or service increases, there is a considerable rise in the quantity supplied, conversely, as the price of the good or service decreases there is a considerable fall in the quantity supplied, other factors affecting supply of the product or service remaining constant (Booth, 2014). This is known as the law of supply. Yet, when the economy deals with the supply of labour, an exception to the law of supply is noticed in the economy. This exception to the law of supply with respect to labour supply is termed as the backwards bendy supply curve. In order to analyse the complete theory of the backward bending supply curve, figure 1 is taken into consideration.

In figure, wage rate for labours are measured in y- axis , whereas, quantity of labour hours provided by the labours are measured in the x-axis. In the figure, a backward bending supply curve is shown which is also known as the labour-leisure trade off. When the wage of the labours were fixed a w1, the labour had provided the firm with l1 hours of labour. As the wage rate rises to w2, the labourer follows the law of supply and increases their quantity of labour hours supplied from l1 to l2. With the rise in the wage rate of the labours, the labour is able to attain more income for their household. This provides them with the incentive of working harder in order to attain the extended wage rate. By increasing the labour hours at the wage rate w2, the labourer is sacrificing their leisure hours. On further increase of the wage rate to w3, a strange effect is notice don the supply of labour hours. In spite of raising the number of hours for working in the organization further, an exception to the law of supply is noticed. The labourers reduce their number of labour hours provided at the wage rate w3. When the wage rate of the labour had risen from w1 to w2, the labourer had raised their standard of living by earning better and working more hours. This had provided them with the disc=incentive of enjoying leisure hours. With the further rise in their minimum wage rate, the labourer enjoys higher pay for the provided hours of labour. Hence, the labour now attain a particular income a much lower level of labour hours provided. Hence, this provided them with the incentive of enjoying leisure hours by providing less hours of work (Rots & Maduko, 2014). This leads to a fall i the supply of labour hours from l2 to l3 with the rise in the wage rate from w2 to w3. Hence, this phenomenon leads to the backward bending of the labour supply curve.

Efficiency Wage Theory and Labour Supply

In economics, a particular theory had been generated that deals with the payment of the labourers in the economy. This theory is known s the efficiency wage theory. The idea of the efficiency wage theory is that it may benefit the firms to pay the workers a wage higher that the marginal revenue of the product produced in the firm. A higher wage paid to the worker is efficient enough to motivate the workers in providing a better quality of work to the organization (Keynes, 2016). The labour feels more devoted and loyal towards the firm and has a fear of losing his income earned. Hence, it works with more dedication, thereby increasing he productivity of the organization. Even though there are various factors that determines the morale of the labourer with respect to its performance and education towards the firm, wage rate is considered as one of the prime factors in it.

The term efficiency wages has been coined by Alfred Marshall, who has aimed at denoting the wage per efficiency unit of labour. With the use of Marshallian Efficiency ages, the employers would be able to pay different wages to different labourers depending upon their productivity in the firm. So far various theories has been stated with respect to the efficiency wage theory. The importance of such theories has been stated as that it helps in avoiding shrinking in the economy, minimizing the labour turnover rate, better election of work offers for the labourers, increase the morale of the labour at work and help the labourers to get a better payment for their work thereby achieving better standard of living and gaining better nutrition (Ehrenberg & Smith, 2016). Each of the stated importance of the efficiency wage theory has been listed as an important theory while dealing with efficacy wages, yet, shirking is considered of vital importance. Carl Shapiro and Joseph E Stiglitz have developed shirking. In this model, the workers must be paid at the level where they do not shrink their labour hours provided. The wage rate at market clearing levels would lead to the shrinking of the labourers, hence, in order to attain a enough labour hours, the workers must be threatened with the possibility of unemployment in the economy. This could be only done when labours are marked at a wage rate efficient enough that would provide the incentive among the workers of work rather than shrink their supply. This could be achieved by applying a wage rate in he economy where the aggregate labour demand curve, intersects the supply curve (Rots & Maduko, 2014).

Ademco Security Group of Singapore

Efficiency Wage Theory focuses on the pay performance structure of the labourers in the economy. It shows how with the maintenance of minimum wage above the marginal revenue of the product sole would help in lowering the labour turnover ratio of the firm. This would reduce the effect of unemployment and moreover benefit the business of the firm by raising its productivity. The performance of an individual labourer is positively related with its pay. A better pay provided to the labourers of the form, provides the labourers with the initiative of showing better performance in the organization so that they do not lose their jobs. It helps them in maintaining a secured work that would continue the upgrowth of their standard of living (Docquier,  Machado & Sekkat, 2015).

Ademco Security Group is considered as one of the most developed firms that deals in providing security solutions specialising of devising customised systems for clients. Ninety percent of the work in the organization comprises of this service, yet only ten percent f the bsuienss relies on man guarding system (Ademco | Company of Ademco Security Group 2017). Yet, it could be stated that this ten percent of the business  is quite valuable for the functioning of the company. The organization operates in various countries, yet, Singapore is posing a severe blow for he firm.

There has been a high labour turnover rate in the firm in Singapore. This has lead to a fall in the productivity of the organization. The  factors tht affected the high turnover rate  are low wage rate, long hours of work and boredom. Among the three factors stated, low wage rate is the principle cause for the other factors to come into existence leading to a fall on the productivity of the firm.

According to efficiency wage theory, low wage rate in the economy reduces the incentive for the labours to show their talent and work with more devotion and dedication. It reduces their effort at work and thereby disturb the functional framework of the firm. According to the efficiency theory, it could be stated that the productivity of the worker is a function of their wage rate and the total productivity is the sum of individual productivity in the firm (Van der Linden, et al., 2015). As Ademco provides lower wage rate to the workers in the firm, the productivity being positively related to wage rate reduces. The reduced wage rate of each worker in the firm further reduces the productivity of the firm. The profit earned by the firm is completely dependent upon the productivity of the individual workers of the firm. Hence, on the basis of efficiency wage theory it could be easily stated that Ademco Security Group has been facing  low productivity in the economy, due t its low wage rate provided to the workers.

In order to attain the well being of the organization, it is quite vital for the firm to raise the minimum wage rate provided o the workers. This would help the firm in raising their productivity by enhancing the individual productivity level of the workers. With the rise in the wage rate of the firm, the firm would follow the law of supply and increase their productivity following the efficiency wage theory.  There would be ample possibility of the firm to increase their profits, as with the increase in the individual productivity of the labourers, there would be an upgrowth in heir performance. This would collectively improve the performance of the firm.

Conclusion 

Efficiency wage theory has been quite vital in exploring the relationship between the productivity of the firm and the wage rate that is provided by the firm to the individual workers. A direct relation has been secured by the theory that suits perfectly in the analysis. Ademco Security Group can raise their productivity in Singapore by raising the wage rate for the individuals in the firm. This would help the firm in increasing their work morale and improving their individual productivity. The dedication and loyalty toward  the work would increase and help the organization in imparting better performance economically.

References

Ademco | Company of Ademco Security Group. (2017). Ademcosecurity.com. Retrieved 27 March 2017, from https://ademcosecurity.com/en-sg/

Booth, A. L. (2014). Wage determination and imperfect competition. Labour Economics, 30, 53-58.

Cahuc, P., Carcillo, S., Zylberberg, A., & McCuaig, W. (2014). Labor economics. MIT press.

Docquier, F., Machado, J., & Sekkat, K. (2015). Efficiency gains from liberalizing labor mobility. The Scandinavian journal of economics, 117(2), 303-346.

Ehrenberg, R. G., & Smith, R. S. (2016). Modern labor economics: Theory and public policy. Routledge.

Fair Work Commission | Australia's national workplace relations tribunal. (2017). Fair Work Commission. Retrieved 27 March 2017, from https://www.fwc.gov.au/

Keynes, J. M. (2016). General theory of employment, interest and money. Atlantic Publishers & Dist.

Rots, E., & Maduko, F. (2014). MACROECONOMIC THEORY I.

Van der Linden, S., Faber, S., Halstead, M., & Altberg, E. (2015). U.S. Patent No. 9,202,219. Washington, DC: U.S. Patent and Trademark Office.