The Relationship Between Wage and Effort

THE increasing specialization of industrial economists and labour economists in recent years has had the unfortunate result that research findings of mutual interest are easily overlooked. This paper attempts to show that certain observations in the field of wage-policy may help towards a better understanding of the process of cost determination in the firm. As yet we do not know very much about the methods which are used in industrial practice to calculate the effect of wage costs on product prices. One factor of obvious importance is the variation of labour efficiency or 'effort'. From the standpoint of economic theory, it is usually sufficient to consider only those changes in the worker's effort which result from changes in his rate of pay. In the real world, however, the problem is complicated by the fact that effort is also affected by various management controls, such as methods of wage payment, time and motion study, methods of production and techniques of supervision. Moreover, different types of effort control are often used simultaneously. It is therefore difficult to isolate the specific effects of a particular form of control. How then is it possible for the entrepreneur to cope with the complexity of the problem? Although there is no simple answer, it will be seen that effort conceptions tend to become standardized and that these standards appear to be surprisingly stable. This facilitates the evaluation of effort considerably. The fact of the matter can best be shown in the case of piece rates, so these will be discussed first. After that we shall find that although the methods of effort control are different with time rates, the process of effort evaluation is essentially similar. Finally, some generalizations may be attempted which are independent of the methods of wage and effort control.