This can be true only in countries where 'hire and fire' policy is legal. In India this principle of efficiency wages does not hold good.
Regards
Virendra Goel
From: join_mtc@googlegroups.com [mailto:join_mtc@googlegroups.com] On Behalf Of drjaganmohanreddy
Sent: Sunday, April 06, 2014 2:55 PM
To: join_mtc@googlegroups.com
Cc: drjaganmohanreddy@gmail com
Subject: [MTC Global] Efficiency Wage
Paying equilibrium market wages. Pay higher than market wages — what economists call efficiency wages. Henry Ford tried this first in 1914 and found the company's productivity and profits going up significantly.
The efficiency wage theory suggests that if an employer pays higher than market wages, it will first of all ensure that workers don't shirk their duties.
The reason is they will be afraid of losing a job paying more than what the market would pay. Second, since the incentive to shirk is reduced, it also means you don't need to monitor them all the time. So you save on monitoring costs, unless you are one of those control-freak nags that some of us probably are. Third, to the extent efficiency wages lead to lower turnover, the employer will also save the cost of training a new domestic worker every few months.
The efficiency wages hypothesis argues that the benefits are large enough so that the cost of paying the higher wages is well worth it. Sociological models also relate this theory to notions of fairness. According to these, when workers believe they are being paid more than the market wages, they might feel morally obligated to reciprocate the kindness of their employer by working harder.
Best wishes
DrAJaganMohanReddy
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