1 / 31

Defining Competitiveness

Defining Competitiveness. Labor Markets & Compensation. © Nancy Brown Johnson, 2005. Walmart. ABC Story on the Sex Discrimination Law Suit. What do we know?. Different people in the same occupation earn different amounts Market wages needed to attract workers If wages too low workers quit

taro
Download Presentation

Defining Competitiveness

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Defining Competitiveness Labor Markets & Compensation © Nancy Brown Johnson, 2005

  2. Walmart • ABC Story on the Sex Discrimination Law Suit

  3. What do we know? • Different people in the same occupation earn different amounts • Market wages needed to attract workers • If wages too low workers quit • Firms desire to control labor costs • Workers vary in terms of skills & abilities

  4. Labor Markets • Demand: employer • how many employees they seek • how much they are willing to pay • derived demand • diminishing marginal returns • Supply: workers • qualifications • what amount they are willing to accept (reservation wage)

  5. Supply & Demand: Labor Market Supply Wage Market Wage Demand Employment Level Employment

  6. Employer Wage Marginal Revenue Product = Labor Demand Market Wage Supply to Employer Firm Employment

  7. Summary of MRP Theory • Marginal revenue = extra revenue generated from the sale of a product • MRP = the additional output from one more person • Employers will continue to hire until: revenue generated by the last hire = expense associated with employing that worker

  8. Labor Demand Elasticity Elasticity: Sensitivity of employment to wages-slope of labor demand curve Hicks/Marshall Laws of Derived Demand • Elasticity of demand for product or service • Ease of substituting other labor or technology for work being done • Supply of substitutes • Ratio of labor costs to total operating costs. • Example of your jobs

  9. Labor Supply Upward sloping supply of labor conditions • Things that create labor scarcity (lack of information, geography, war) • Differences in human capital • Differences in social capital

  10. Modifications to Theory • Demand • Compensating Wage Differentials • Efficiency Wage Theory • Signaling • Supply • Reservation Wage • Human Capital • Job Competition • Product Market • Product Demand • Competition • Organization factors

  11. Compensating Wage Differentials Employers must offer higher wages for undesirable job characteristics • time & expense to acquire skill • job insecurity • bad working conditions • low chance of job success • danger

  12. Efficiency Wage Theory • Employers pay above market wages to: • attract quality applicants • reduce turnover • increase effort • reduce shirking • reduce supervision • Increased costs offset by productivity • More selection needed

  13. Signaling Theory DEFINITION - Employers pay policies signal to current and prospective employees the employer job expectations What were some of the signals you found in your first assignment?

  14. Example 1: Low base wage and high bonuses • indicate employer seeking high performance, risk-taking employees. • Found in new companies (computer industries) or seasonal industries (realty, car dealers)

  15. Example 2: High base wage and normal benefits • signal employer wanting team players. • found in established companies • established routines and culture • employees expected to fit culture

  16. Human Capital • Influential economic theory explaining pay differences • Higher earnings come from individuals investment in training & education • High pay represents a return to that investment

  17. Job Competition • Workers compete for job opportunities where pay is quoted • Job candidates ranked • The farther down the employer goes in the ranking, the more expensive because: • pay same wages to all employees • must train lower ranked employees

  18. Product Market Factors: Product Demand • Labor market conditions set minimum pay to attract employees • Product market sets maximum pay • Employer above maximum must pass on expense through price increases, productivity, or allocate greater share of total revenues to labor costs • Example: US automakers

  19. Product Market: Degree of Competition • Highly Competitive • less able to raise prices without loss of revenue • ability to take wages out of competition • Single Seller • able to set whatever price they choose

  20. Other Product Market Factors • Productivity of labor • Technology employed • Level of production relative to capacity • Extent of non-human resource expenses • These factors vary more across than within industries

  21. Organizational Factors:INDUSTRY • Dictates who employer employs • Labor intensive jobs pay less (education and service) • Less labor intensive jobs pay more (pharmaceutical, etc..) • This relative pay scale has been same for the last 70 years

  22. Organizational Factors • Employer Size • Large organizations pay more than small organizations • Organizational Strategy

  23. Wage Surveys …putting theory into practice

  24. Defining Relevant Markets for Study • Occupation • Product market competition • Geography: national, regional, local • Salary comparisons by region • Industry

  25. Pay Policy: firm pay relative to market • lead: pay ahead of market • lag: pay behind market • hybrid: mixture of three for different jobs, may include pay-at-risk • employer of choice: complex mixture of pay, benefits, and other employment opportunities

  26. Pay Survey • Define relevant market • occupation, geography, product market competition • maybe same method of payment • May require different surveys for different occupations • How many employers to include in survey • Concerns of price fixing • Publicly available data

  27. Which jobs to include? • Benchmark • select a sample of jobs • contents known • jobs supply & demand stable • representative of job structure • sizable proportion of workforce

  28. Other ways of compensating • Maturity pay • Pay for common jobs based upon years since degree • Skill based pay • Pay based upon the number of jobs employee knows

  29. Summarize the Data • Central Tendency: mean, median, mode • Frequency Distribution: histogram • Quartiles

  30. External Equity Case: A car manufacturer located in Georgetown, Kentucky wants to do a market survey to ascertain market wages for its production workers. You have been hired as a compensation consultant to help determine what wages they should pay. The First phase is to design a pay survey. • Identify five firms you would want to include in your study and explain why? • Identify what information you would like to collect from those included in your survey..? • Given the theories we have covered are their other considerations that you would like to take into account?

  31. Conclusions • Affects firms ability to attract and then retain workers • Not a single rate of pay but a range of pay • External equity equates to the pay level

More Related