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Lecture 7

MHR 749 Lecture 7: CHAPTER 7

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Human Resources
MHR 749
Margaret Yap

CHAPTER 7: External competitiveness: refers to an organization’s pay relative to other organizations - Expressed in practice by setting a pay level that is above, below or equal to competitors Shaped by: - Labour Market Factors: nature of supply and demand - Produce market factors: level of product demand, degree of competition - Organization factors: industry and technology, employer size, employee’s preferences, organization strategy Pay forms: the mix of the various types of payments that make up total compensation Pay levels: the average of the array of rates paid by an employer (ex. Sum of base, bonuses, benefits, options / number of employees) Labour costs = number of employees x pay level Assumption of economic theories of labour markets: - People are homogenous and thus interchangeable - Pay rates reflect all costs associated with employment - Markets faced by employers are competitive - Employers always seek to maximize profits The additional output from the employment of 1 additional person is a labour market factor that shapes external competitiveness Marginal product of labour: the additional output associated with the employment of one additional human resource unit with other production factors held constant Marginal revenue of labour: the additional income generated when a firm employs one additional unit of human resources, with other production factors held constant Pay policies (levels and pay mix): indicate the kinds of behaviour an employee seeks. This is a prediction of signaling labour demand theory Compensating differentials theory: the idea that higher wages must be offered to compensate for negative features of jobs Efficiency wage theory: high wages may increase efficiency and lower labour costs by attracting higher quality applicants who will work harder - Attract higher quality applicants - Lower turnover - Increase worker effort - Reduce “shirking” (slacking off) - Reduce the need to supervise employees Prediction of efficiency wage theory: the prediction of efficiency wage theory is that above=market wages will improve efficiency by attracting workers who will perform better and be less willing to leave. So staffing programs must have the capability of selecting the best employees; work must be structured to take advantage of employee’s greater efforts Signaling theory: the idea that pay levels and pay mix are designed to signal desired employee behaviours Reservation wage theory: the idea that job seekers have a reservation wage level below which they will not accept a job, no matter how attractive the other job attributes - This theory predicts that job seekers will not accept jobs when pay is below a certain wage, no matter how attractive other jobs are Human capital theory: the idea that higher earnings are made by people who improve their potential productivity by acquiring education, train
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