Labor Supply for Fair Work Commission Australia

Question:

Write an essay on Labor supply.

Answer:

Introduction 

This research is based on the public sector companies in Australia and the futility of pay for performance design in the organizations to improve employee performance uncovered by fair work commission Australia. This research is based on the different articles and researches on the topic which indicate the fact that the motivational factor of the government employees working in public service are not as motivated by the payment unlike their private sector counterpart. The pay for performance stresses on the fact that the professionals working in different sectors expect sufficient remuneration for their efforts and fulfils this need by making sure that the payment of the employees is based on their performance. This pay structure is not sufficient to ensure high performance level among the government employees. So, this report will follow the different literature on the topic to point out the reasons of the unsuitability of the system in government sector. The different literature will be used by the researcher to make note of the different needs of the government sector employees in Australia and the motivational factors behind their performance. It is undeniable that pay is important but it is not the sole motivational factor of the employees so to form a complete picture of the needs this research is being carried out (Bailey, Fessler and Laird, 2011).

The steps that are important in this process are the determination of the different factors that might motivate an employee in the public service to raise their performance level. Then the possibility of the improvement of the pay for performance design by the use of the motivational factors uncovered and finally to judge the possible success of the design against the moderately successful pay for performance design that is in place. Therefore, the intent of this report is clear as the success of the pay for performance design is higher in private sector and disappointing in the public sector (Ericson and Ericson, 2010).

Background of the organization

The Fair Work Commission Australia was formerly known as the Fair Work Australia, which is an industrial relations committee that was created by the Fair Work act 2009. The main task of the organization is the setting of the minimum wage that is enforced in all industries and the industrial awards and standards that are judged by the organization. The goal of the commission is to creation or restructuring culture of the different industrial workplaces. It also deals with the disputes at work and the complaints of unfair dismissal along with standardizing the minimum conditions at workplace like minimum wage. The regulation and enforcement of the provisions that are included in the charters of the organization are one of the most important responsibilities of the organization and the remuneration of the workers in industry is regulated by the organization. Workplace bullying and other problems like the preferential treatment of the employees, unfair conduct between the employee and employer are controlled and managed by the organization. So the motive of the organization previously known as fair work Australia and now known as fair work commission remains the same since its conception (Taylor & Taylor, 2010).

Literature review

The different economic theories are used in the context of effort of the employees and wage on the performance level of the workers. The different theories and their implications on the research subject is given according to different theories.

Labor supply

Labor supply is the hours a worker puts in the labor market consecutively at a given wage rate when the effort put forth by the individual in question is optimal (Flannery, Hofrichter, & Platten, 1996). Therefore, labor supply depends on various factors like the rate of wage, personal income leisure balance etc. The labor supply in a particular sector is dependent on the mindset of the employees but a common pattern is visible in the wage hour graph of the particular employee. The effort or the intensity of effort also puts a strain on the work hours as the higher the intensity of the effort the lower the labor supply for an individual.

The given graph is dependent on the various factors but the only the rate of wage is chosen as variable and the rest are constant. Then the graph depicts the labor supply of the market at different wage rates.

Efficiency wage theory

The effort of the employees is dependent on the wages paid to the employees compared to the prevalent market rate. Therefore, the efficiency of the workers and their performance level is dependent on the wages paid to them. According to the efficiency wage theory the organizations are advised to make sure that the wage rate of the employees is higher than the prevalent market rate which cuts down on the dissatisfaction among the employees thus reduce chances of lower effort of the employees which invariably result in the lower profitability of the organization (Lavy, 2007).

One of the most prevalent theories in this context is the shirking theory. According to this theory, the shirking of duty is more common if the wage that is paid to the employees is lower than the market rate. This results in the shirking of the duty and the lower performance in the organization. Therefore, to circumvent this problem the way is to provide external or internal monitoring for the employees. For external monitoring supervisors or managers are employees to monitor the efforts of the workers and the overall performance but the process is expensive and scope too broad to monitor individual performance. The internal monitoring is applicable when the wage is higher than the market rate and the employees are conscious of the fact. I that case the employees monitor themselves, as they do not want to lose their jobs, which are made valuable from other alternatives by the higher wage and the loss, is high (Taylor & Taylor, 2010)..

Another theory that is applicable in the situation is the gift exchange theory of the employee and employer. According to the theory, the higher wage than the market rate is gift that the employer gives to the employees and the employees reciprocate by returning the gift of higher effort and loyalty. Therefore, this theory is different and the outlook of the higher than market wages is seen as an incentive to engender loyalty in the workforce (Li Ma, 2015). 

The labor turnover model suggests that the higher wages reduce the chances of the employee turnover as the comparative high wage than other firms make sure, that the current jobs of the employees of the firm remain more attractive than other alternatives. So the workforce puts more effort in their duties to retain the job than other cases where the alternatives are seen as profitable (Taylor & Taylor, 2010).

The adverse selection model suggests that the low wages will attract only the employees with low skill so the wages must be raised to attract high ability employees. Therefore, to make sure that the performance of the firm is optimal the high wage is a necessity. Although the public sector is not known as base of too many researches, the private sector in comparison in many cases proven that the wage is a factor in the employee motivation.tha salary and the other benefits that are given to an employee play an important role in the effort that employees gives to their duties (Taylor & Taylor, 2010).

Pay – Performance Structure

Generally, most of the compensation plans were based on the market rate for different profession for the new employees and as their time in the company grows their pay is based on their performance and their experience provided that they did not cause any major mishap in the organization that affected the profitability or the reputation of the firm greatly. Pay performance structure is a radical idea that is based on the performance level of the employees that is the deciding factor of their compensation. This is one of the most effective ways to reward the deserving people in an organization and draw out even more effort from the capable employees of the organization. 

This pay performance structure works to incite the employees of the organization into greater efforts and the difference between the competence of the employees and the extraordinary performance is separated. It is the goal of many companies to relate the reward to the performance outcome of the company (Mitchell, 1990). This is judged into the individual performance of the employees so the employee compensation by the performance is just. The employee performance and the compensation based on the performance also generate more competitiveness of the employees. Performance of the employees and the compensation that is based on individual performance spurs the whole workforce and especially capable employees into greater efforts (Mitlacher & Paul, 2009).

Labour supply and demand

The price of any commodity or service is determined by the demand of the item in question and the demand in the market for that specific commodity. The supply and demand for labour in the production of a particular item is based on the graph of wages and the hours worked by an employee given.

This graph gives the indication and proof of the fact that the demand for labour is negative sloped and the supply is constantly positive sloped. The labour supply is always on negative slope as the high wages will force the price of the commodity to rise and thus the sales will decrease. This will lessen the need for labour as the production rate will be lower. Another reason behind the negative slope is the fact that the relative price of labour becomes higher than the capital then there is the chance of positive replacement of capital by labour. Thus the labour used will become lower in comparison (Oakley, 1999).

If the wage is free to adjust from responses of market forces the wage will be at equilibrium. If it’s below equilibrium then the company will be able to pay higher wages to attract more labour. If the rate is higher than equilibrium point then the wages will lower to employ all the labour presenting itself for hire to the companies.

Example of key concepts in practical setting

In the case of labour supply a study done on the company venture in Singapore showed that the ministry of manpower suggested 44 hours a week work hour is not maintained by the workers in their own will. 52% of the male workers and the 42% of the females working are volunteering for the extra workload to earn extra. Although the main motivation behind the willingness to work the extra hours is monetary, there are other reasons behind the working overtime for some of the employees of the company. Many of the workers of both genders admitted to working overtime to promote their position in the company and overall career progression. Many also admitted to personal development a reason behind their willingness to work overtime.

Efficiency wage theory is also a motivator in the different companies all over the world where the higher wage is implemented by the companies for different reasons like the loyalty and rise of performance and profitability. Emmanuel white the regional director for Hudson Singapore stated that the reason for high wages in the company is the plan of growth of the company and the need for experienced and capable workers who are only attracted by higher wages. The study on the company shows the different reasons of the turnover of employees.

But the main things that a require in a new role are the main target of the company.

The right salary is the highest among the things a person wants in the new role. The work life balance or the labour supply which balances the work hours with the wage are second so the company’s assumption that the wages and work hours make a job attractive are right. Therefore, the theory that is given in the previous chapter about making the job more attractive to other alternatives is applied in these cases.

The pay performance structure of the Singapore labour market is the latest trend in the market according to the hays Asia salary guide 2015. The companies in the Southeast Asia including Singapore are prone to reward the employees whose performance is above average by bonuses and other extra remuneration and benefits. Thus, it is clear that the pay for performance structure is leaving its mark in the Singapore labour market and many of the manufacturing companies in the region are applying this technique to boost the performance level of the workers. This also on the other hand promotes the productivity of the company and the bonus and other benefits are proportional to the impact the performance of an individual or team has in the overall performance of the company. So this reward system is being used in the region for obvious reasons.

The current situation in the Singapore labour market is in a clinch and expected to tighten in near future. Therefore, the wage is high and the labour supply is higher with no possible increase in employment in sight. Therefore, the unemployment is high and the level can only be brought down by the lowering of wages that will affect the performance of the company adversely in all the relevant cases.

In the practical setting of Singapore, the different theories discussed are being applied by different companies and their effects wherever discernible are given in the chapter.

Recommendation and comments

The wage and the motivation of the employees is an important part of running a company, as the workers are the ones who produce the commodities that are sold by the company so the wage is the most important factor that determines the effort level of the company and the performance of the company (Springer, 2009). So in the different situations the wage and the employee motivation needs to be balanced and the effort of the employees needs to be ensured not only by the high wage but also other factors like the work life balance and scope of personal and professional growth.

The recommendation for the different companies is to not only depend on the high wage to motivate the employees into higher level of effort and performance but to judge each situation individually and take the necessary steps to ensure the cooperation of the employees and their effort by balancing the various factors that control their performance (Stromback, 1994).

Conclusion 

It is clear from the research that the performance of the individuals or the collective work force depends on many factors. Among those factors, the wage is the most important one that is the deciding factor for the effort level of the employees in different settings. The different theories of the labour market and the motivational factors of the workforce are described in detail in the literature review portion of the essay. So the motivational factors underpinning the performance level of the workers in different settings are judged in the essay and the practical effects of the implementation in the Singapore labour market are given. Therefore, it is a full accounting of the pay for performance and the different facets of the same that can be applied in different settings for different reasons. 

References

Bailey, C., Fessler, N., & Laird, B. (2011). Examining the Effects of Performance-Based Pay and Performance Monitoring on Task Performance. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2645380

Ericson, R. & Ericson, R. (2010). The new standards. Hoboken, N.J.: John Wiley.

Ewing, B. (1996). Wages and performance-based pay: Evidence from the NLSY. Economics Letters, 51(2), 241-246. http://dx.doi.org/10.1016/0165-1765(95)00775-x

Flannery, T., Hofrichter, D., & Platten, P. (1996). People, performance, and pay. New York: Free Press.

Lavy, V. (2007). Using Performance-Based Pay to Improve the Quality of Teachers. The Future Of Children, 17(1), 87-109. http://dx.doi.org/10.1353/foc.2007.0007

Li Ma, S. (2015). Pay-for-Performance Based on Adhering to Clinical Practice Guidelines: Justified or Not?. Journal Of Pain & Relief, 04(01). http://dx.doi.org/10.4172/2167-0846.1000e118

Meulbroek, L. (2008). Restoring the Link Between Pay and Performance: Evaluating the Costs of Relative-Performance-Based (Indexed) Options. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.294442

Mitchell, L. (1990). Performance based pay. Kensington, N.S.W.: Public Sector Research Centre.

Mitlacher, L. & Paul, C. (2009). Performance-based pay systems for teams: explaining the design of performance-based pay systems for teams from an expanded agency theory perspective. International Journal Of Business Performance Management, 11(3), 171. http://dx.doi.org/10.1504/ijbpm.2009.024369

Oakley, P. (1999). Performance-related pay for doctors had both beneficial and adverse effects. Evidence-Based Healthcare, 3(3), 55-56. http://dx.doi.org/10.1054/ebhc.1999.0251

Springer, M. (2009). Performance incentives. Washington, D.C.: Brookings Institution Press.

Stromback, T. (1994). Performance based pay. Perth, W.A.: Curtin University of Technology, School of Economics and Finance.

Walker, D. (2010). The Way We Pay Now: Understanding and Evaluating Performance-Based Executive Pay. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2650532

Whirlpool’s performance-based pay programs. (1995). Management Report For Nonunion Organizations, 18(7), 4-6. http://dx.doi.org/10.1002/mare.4080180705

Taylor, J., & Taylor, R. (2010). Working hard for more money or working hard to make a difference? Efficiency wages, public service motivation, and effort. Review of Public Personnel Administration, 0734371X10394401.

Shields, J., Brown, M., Kaine, S., Dolle-Samuel, C., North-Samardzic, A., McLean, P., … & Plimmer, G. (2015). Managing Employee Performance & Reward: Concepts, Practices, Strategies. Cambridge University Press.

Finster, M., & Miller, J. (2014). Empirical Costs of Implementing a Performance-Based Educator Pay Schedule: Insight into Factors Driving Implementation Costs.

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