Tuesday, November 21, 2006

Equal work, equal pay

Research news to gladden the heart of a trade unionist, or anyone concerned with workplace equity. Experimental economists at the University of Innsbruck have found that standardised employment contracts based on the "equal work, equal pay" principle increase worker performance and market efficiency boost motivation. There is a clear increase in performance levels and market efficiency, compared to individually negotiated contracts.

From the press release:
Their research has proved for the first time that employers draw clear benefits from standardised salaries because, if a market only issues incomplete contracts, employee responsibilities become difficult to pin down. In other words, standardisation does not simply increase salaries, it also generates economic advantages in the shape of better performance and greater market efficiency.

Research leader Prof. Matthias Sutter notes:
"Our observations revealed that, compared to individual agreements, salaries related to standardised contracts are 30 percent higher. However, performance is also higher in these cases - by 29 percent. Faced with these results, it comes as no surprise that salary standardisation also increases market efficiency by almost a quarter. Standardised contracts, the economic advantages of which have never before been investigated, are now becoming increasingly attractive thanks to these results."

The results appear to depend on a cyclical effect - employers who wish to reward individual employees must also reward other workers, encouraging everyone to work harder and thus increasing market efficiency. By contrast, individual and collective responsibilities are difficult to specify in individually negotiated contracts. I'd guess there's also other behavioural effects in less equitable workplaces, though that's not directly addressed here.

There's a clear lesson for many employers, Sutter concludes:
"Particularly in the university system, employees who essentially have the same job description are remunerated on very different scales. This is due to the rapidly changing employment conditions in the public service sector. As a result, lecturers and professors get different contracts with different salary and pension rights. Our data now suggests that this could have a negative impact on performance."



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