Looking to Benchmark Pay?
Productivity
Now let's take a closer look at productivity.
Earlier in the course, productivity was referred to as what the employer gets in return for pay. The term effort bargain may also be used in today's employment practices for this "exchange" between the employee and employer.
| Effort bargain |
The effort bargain is what an employee receives (level of compensation, benefits, etc.) from an employer in exchange for what the employee:
The terms of the bargain may be outlined in an employment contract or employment offer letter. |
|---|
Productivity is a result of the application of human and other resources. As such, it's a prime determinant of ability to pay.
- If production increases in the same proportion as salary costs, then labor cost per unit remains unchanged.
- If an increase in the salary level is not matched with a proportional increase in productivity, labor costs per unit rise.
At some point this mismatch runs the risk of exceeding the employer's ability to pay.
Productivity isn't widely used as an explicit wage-level determinant, but it's always present in the form of the effort bargain. If the employer gets more output for each unit of input, the organization's ability to pay is increased. For this reason, productivity deserves some discussion as part of the concept of ability to pay.
Q: What is productivity?
A: Productivity refers to a comparison between the quantity of goods or services produced and the quantity of resources employed in turning out these goods or services.
Productivity is the ratio of output to input.
Output can be compared with various kinds of inputs, such as:
- hours worked
-
OR
- the total of labor and capital inputs
Memory Jogger
If an employer gets less output for each unit of input, the organization's ability to pay is: