Basis of wage claims, Managerial Economics

The Basis of Wage Claims

The union's demand for higher wages is normally based  on one or more of the following four arguments:

1. The cost of living argument

This is the commonest argument in that rising prices mean a fall in real incomes.  Thus trade unions demand higher wages so that the workers can maintain their present living standards.  It is important, however, that when trade unions use this argument they should also ensure that the productivity of the workers also increases.  This is because if wages increase while productivity does not, this will mean higher costs of production for the firm and this will lead to higher prices and more wage demands leading to a wage price spiral.  Thus, in addition to demanding higher wages, trade unions will also demand conditions, which go towards increasing the efficiency of labour.  These are:

a.        Motivating factors which boost the morale of workers like free or subsidized housing, free medical benefits, paid maternity leave, and paid sick leave.

b.       Safe and hygienic working conditions

c.        In-Service training or study leave to up-date the skills of workers

d.       Efficient co-operating factors like efficient machinery and tools.  Here, however, they must be careful because if the machinery is too efficient it may actually displace labour.

2. The productivity argument

Productivity is measured in terms of output per worker.  If this increases, workers can claim higher wages with the argument that their efficiency has increased.  This argument is justified if  it can be proved that productivity has increases as a result of the increased efficiency of workers, e.g. through less absenteeism and less idle talking.  However, if productivity increases as a result of the installation of new machinery, the benefits should go to the investor.

The argument of productivity can only be used in cases where the output of the firm can be measured.  Where output cannot be used, e.g. it is difficult to measure the productivity of civil servants.  In some cases productivity can fall due to factors beyond the control of the workers, and salaries of the workers cannot be reduced e.g. the efficiency of traffic police can fall due to increased traffic, but this does not mean that police should have reduced salaries.

3. The profit argument

If firm profits increases, workers can claim to have a share in them on the basis that they contributed to the increase.  This argument is justified if it can be proved that the increase in profits is due to increased efficiency of the workers.  If, for example, it is due to increased investment in advertising by the firm, the benefits should go to the investor.

4. The differential argument

This argument is justified if the two firms have the same profit level and if the efficiencies of the workers in the two firms are the same.  Otherwise it is not justified.

Posted Date: 11/29/2012 5:18:05 AM | Location : United States







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