The influence of minimum wage policy on the increase of workers' productivity Essay

Last but not least, minimum wage policy can bring positive impact which is increase in productivity. This is in relation to the efficiency wage theory that states higher wages will motivate workers to work harder and perform well. Higher payroll to workers can increase workers morale which result in less employee absenteeism and thus increase their productivity. When labour productivity increases faster than wages, stockowners and capital will gain benefit from it. According D. Levine, D. Raff and L. Summers, minimum wage will increase workers' productivity due to increased work effort, multitasking and reduce job turn over.
Minimum wage policy encourage firms and workers to undertake productivity-enhancing measures. As the relative cost between capital and labour narrows, firms may be incentivised to invest in more advanced technologies that could enhance productivity. On the other hands, firms may also be encouraged to provide industrial training to improve their workers' skill and competence which result in higher productivity. Training program encourage firms to concentrate on productivity from good workers rather than cheap labour. Monetary reward may inspire employee to put more effort on their task and job. As employee have better performance in working place, they will also reduce error and lead to less wastage.
According to the research done by the International Labour Organization, most countries do experience better productivity with better wage. For countries like Denmark, France, Finland and UK, there is close relationship between wage and productivity growth. For instance, in UK, there is positive effect on productivity in the low-pay sectors, especially in large firms. The major reason is the greater ability of large firms to reorganise their productive schedules. In Thailand, since the minimum wage policy started, workers' productivity has 12% growth, compared to an average of 2% growth without the implementation of minimum wage policy. In China, minimum wage improves aggregate efficiency due to productivity increment among surviving firms and net entry of more productive ones. Minimum wage allows more productive firms to substitute the least productive firms and encourage incumbent firms to become more competitive.
There are some critics of the minimum wage. In some of the largest economies of the region, wage growth lagged behind productivity growth. This happen in the United States, Japan and in Germany. According to the study by IZA World of Labour, it revealed that minimum wage in United States reduce productivity in industries that hire relatively larger shares of low-skilled workers such as retail and restaurant relative to industries that hire relatively larger shares of high-skilled workers such as professional services and banking and finance. The results show that a 10% increase in the minimum wage is associated with a 1 until 2% decline in GDP generated by lower-skilled industries as compared to higher-skilled industries.
Despite criticisms towards minimum wage, we strongly believe that minimum wage will improve productivity and innovation over the long run and spur companies to invest in training and equipment to make their workers more productive as can be seen on the examples of UK, Thailand and China.