The Theory and Practice of Pay Setting

Introduction

In modern economies employers purchase labor power from workers who, in general, obtain their income from the sale of their labor. For the employer, the wage is the price of labor: the cost of securing the worker's productive capacity. However, as management theorists (and efficiency wage theorists before them) tend to emphasize, pay can also be used to elicit greater worker effort. As Marx (1976) emphasized, employers generally purchase units of workers’ time rather than discrete units of effort. Employers can create incentives for workers to work more intensively over a given period - what Marx termed the ‘real subsumption of labour’- or to work more extensively, by increasing their working hours ...