Summary of Do Higher Wages Pay for Themselves?

An Intra-Firm Test of the Effect of Wages on Employee Performance

James Hesford, Nicolas Mangin and Mina Pizzini

University of Bern, 2015

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Do Higher Wages Pay for Themselves? summary

New evidence sheds light on the relationships among wages, productivity and profitability.

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9 Innovation

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Recommendation

Setting wage levels has always been tricky for employers, because gauging whether higher pay motivates employees to make a measurably positive impact on the bottom line is difficult. In this first-of-its-kind research report, academics James Hesford, Nicolas Mangin and Mina Pizzini draw significant conclusions about the connections among higher wages, productivity and profitability from a US hotel chain’s actual results. getAbstract recommends this scholarly study to anyone charged with making compensation-related decisions.

In this summary, you will learn

How various theories describe the connections among wages, productivity and profitability;
Whether compensation gains actually lead to profit growth; and
How wage increases pay for themselves with higher profitability and customer satisfaction, as well as lower employee turnover.

Summary

Economists, sociologists and businesspeople have long debated theories about the costs versus the benefits of raising employees’ wages. According to the “efficiency-wage hypothesis,” employers will lift pay to the point where the gain in worker productivity offsets the added wage cost. Under this reasoning...

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About the Authors

James Hesford is an associate professor at the Ecole Hôtelière de Lausanne, where Nicolas Mangin is an assistant professor. Mina Pizzini is an associate professor at the Naval Postgraduate School in Monterey, California.