Organizations determine the pay and labor demand via the profit maximization approach, with the ultimate goal of producing the highest level of output at the lowest possible cost. Economists typically apply various assumptions in order to discover the equilibrium quantity and price of labor. Firms recruit people when labor is an input to production. Firms require labor, which workers provide for a fee known as the wage rate. Wages are commonly used to refer to the amount of money paid to a worker, but in economics, they refer to total compensation, which includes benefits.
Firms optimize profit in the long run by selecting the best combination of labor and capital to create a given amount of output. The confluence of supply and demand for labor determines the wage rate (Azar et al., 2019). In most cases, a drop in labor supply will result in a wage rate increase. Because a reduction in supply tends to raise salaries, unions and other professional organizations have frequently pushed to limit the number of workers in their industry.
I personally work as a receptionist in the dental industry. In the private medical service spheres, the pat decisions are affected by the labor market. Physicians, for example, have a financial incentive to impose stringent training, certification, and licensing requirements in order to limit the number of practitioners and maintain a low labor supply. In my company, dentists earn more per hour than retail clerks. Compensation differentials are wage differences that can be explained by various reasons, including differences in worker abilities, the country or geographic area in which activities are done, or the nature of the professions. Nevertheless, different regulations can impact employee pay and benefits. For example, the Affordable Care Act contributed to the decrease in uninsured employees. Marketplace reforms and subsidies allowed to make health insurance more accessible for people with low income.
One of the ways that labor and product markets influence pay decisions is through labor market competition. For the organization to effectively compete in the product market, it should sell its services and goods in such a way that it brings a return for the new investments (Noe et al., 2021). Thus, an organization that has higher labor costs, in other words, an organization that pays its employees more, is required to put higher prices on its products. The second important factor that affects pay decisions is labor market competition. “Shortages and surpluses influence pay levels,” according to the textbook (Noe et al., 2021, p. 485). Next, it is important to note that the pay decisions are affected by the approach of the particular company. For example, if the company prioritizes attracting the most talented employees, they are more likely to pay higher salaries. On the other hand, such a pay decision will lead to an added cost.
Benefits communication is one of the most critical duties a company has today because employee benefits greatly impact job satisfaction and attitude towards the work. Employees require demonstrations of how their benefits interact and assistance in making the best decisions for themselves and their families. Communication materials should be of the highest quality, attractive, and simple to comprehend. Employees can feel confident that they are working with a competent, high-quality organization when they see well-produced goods.
References
Azar, J., Berry, S., & Marinescu, I. E. (2019). Estimating labor market power. Web.
Noe, R., Hollenbeck, J., Gerhart, B. & Wright, P. (2021). Human Resource Management. McGraw-Jill Education.