Economists have long argued that increases in worker pay can lead to improvements in productivity—indeed, that it can actually be profitable to pay workers higher wages. Last year, Justin Wolfers and Jan Zilinsky of the Peterson Institute for International Economics, decided to explore literature and theory on how pay increases influence productivity. Their article summarizes their findings for major private-sector companies in the United States:
- Higher wages motivate employees to work harder.
- Higher wages attract more capable and productive workers.
- Higher wages lead to lower turnover, reducing the costs of hiring and training new workers.
- Higher wages enhance quality and customer service.
- Higher wages reduce disciplinary problems and absenteeism
- Workers excessively concerned about income security perform less well at work.
Other mechanisms by which higher wages can yield offsetting benefits include:
- Higher wages are associated with better health—less illness and more stamina, which enhance worker productivity.
- Greater job satisfaction can result in less conflict between employers and labor groups.
- Enhanced reputation with consumers (compare the reputations of Costco and Walmart).
Source: Higher Wages for Low-Income Workers Lead to Higher Productivity | PIIE
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