Low Wages Will Damage Long-Term Competitiveness Of Enterprises

To let the public enjoy the fruits of reform and opening up is not only a good hope for all labourers but also a basic requirement for further improving people's livelihood.

In economics, there is a famous theory of efficiency wage, which reveals the relationship between the wage level of workers and the efficiency of work.

The theory holds that if the wage paid to the laborer is higher than the wages paid by the market, the enterprise can get the lowest total labor cost and the maximum profit.

There are many reasons for supporting this argument. American economist David Romer listed four important reasons: higher wages can increase the food consumption of workers and improve the nutritional status of workers; higher wages can improve workers' efforts; higher wages can improve workers' ability to observe other aspects; higher wages can cultivate workers' loyalty to enterprises.

Many empirical studies also support the efficiency wage theory.

One of the most famous examples is Henry Ford's high salary practice.

In 1914, Ford motor decided to raise the wages of workers from $2.5 a day to $5, which is almost double the average hourly wage of manufacturing at that time.

Most people predict that high wages will soon crush the Ford Motor Co.

However, the opposite is true.

Ford's high wage strategy has been a great success.

It is estimated that in the year when the new wage policy was implemented, the productivity of Ford Motor Co increased by 51%.

It is this breakthrough in traditional thinking and bold innovation. Henry Ford is also known as the "father of industry in the twentieth Century".

By contrast, most entrepreneurs in China remain at a time when they rely on lowering workers' wages for higher profits.

The logic of this mindset is simple: the less workers get, the more I earn.

But at the same time, the problems and hazards brought by the low wage system also emerge.

In other words, the low wage system will bring the following four consequences at least.

First of all, labor relations have worsened.

As explained by the theory of efficiency wages, the direct consequence of low wages is that workers may lose their enthusiasm for work and produce "laziness" behavior.

In order to prevent workers from "laziness", enterprises are bound to use various supervisory measures.

Thus the supervision cost of enterprises will inevitably increase greatly, and the contradiction between labor and capital can only be sharper.

According to statistics from the Ministry of labor and social security, the number of labour dispute cases has increased 13.5 times in 12 years of 1995~2006, and the number of cases of collective labor disputes has increased by 5.4 times.

Second, it has damaged the efficiency of enterprises.

Under the low wage system, enterprises are unwilling to pay training expenses for employees, and many workers are unable to attend training at their own expense, which makes the quality of our labourers hard to improve rapidly.

Thirdly, high turnover rate and frequent job hopping.

Low wages can hardly improve workers' loyalty to enterprises, and brain drain is serious.

According to the latest findings of "global human resource management research in 2007", only 16% of all Chinese employees surveyed said they would devote themselves to the work of the enterprise, while 33% of them showed a certain degree of complete or low degree of engagement, and 68% of the employees interviewed were looking for new jobs.

Finally, shorten the life span of an enterprise.

It is precisely because of the above factors that the life span of Chinese enterprises is not long.

Studies have shown that the average life expectancy of enterprises in Europe and the United States is 40 years, but the average life expectancy of Chinese enterprises, especially private enterprises, is less than 3 years.

In view of this, it is urgent for Chinese entrepreneurs to change their concepts.

Because the low wage system may bring some short-term benefits, but it is not conducive to the long-term development of enterprises.

We should raise the wage level and welfare benefits of workers and speed up the development of independent innovation.