Question 1

An externally competitive should help contain labour costs.

Accepted Answer

A) True 
 B)False  True

Question 2

What are the main consequences of an externally competitive pay policy?

Accepted Answer

An externally competitive pay policy refers to a compensation strategy where an organization sets its pay levels to match or exceed the market rate for similar jobs within the industry. This approach is often used to attract and retain top talent by offering compensation that is as good as, or better than, what competitors are offering. The main consequences of implementing an externally competitive pay policy include:

1. Attraction of Talent: By offering competitive salaries, organizations can attract highly skilled and qualified candidates who might otherwise choose to work for competitors. This can be particularly important in industries where there is a high demand for certain skill sets.

2. Employee Retention: Competitive pay can be a strong incentive for employees to stay with an organization, reducing turnover rates. This is especially true for top performers who may have multiple employment options.

3. Enhanced Reputation: Companies known for paying well may enhance their reputation as an employer of choice. This can improve their brand image not only among potential employees but also customers and investors.

4. Increased Cost: One of the most significant consequences of an externally competitive pay policy is the increased cost to the organization. To maintain competitiveness, the company may need to regularly adjust salaries, which can impact the bottom line.

5. Potential for Pay Inflation: If companies within an industry continually try to outdo each other with higher salaries, it can lead to wage inflation. This can become unsustainable over time and may require adjustments in pricing or cost-cutting measures elsewhere.

6. Internal Pay Equity Issues: Aligning external competitiveness with internal equity can be challenging. Employees may compare their pay to that of new hires or colleagues in similar roles, which can lead to dissatisfaction if discrepancies are perceived.

7. Budget Allocation: A focus on external competitiveness may require reallocating budget resources from other areas, such as training and development, benefits, or workplace improvements, which could have long-term implications for the organization's growth and employee satisfaction.

8. Market Sensitivity: The organization's pay policy becomes sensitive to market fluctuations. During economic downturns, maintaining high salaries can be difficult, while in booming markets, the pressure to increase pay can intensify.

9. Legal and Regulatory Compliance: Competitive pay policies must be managed within the framework of legal and regulatory requirements, such as equal pay for equal work, minimum wage laws, and other compensation-related regulations.

10. Impact on Organizational Culture: A strong focus on external competitiveness can shape the organizational culture, potentially emphasizing financial rewards over other aspects of the work environment, such as collaboration, innovation, or work-life balance.

In summary, while an externally competitive pay policy can be an effective tool for attracting and retaining talent, it also carries financial implications and can impact various aspects of organizational management and culture. Companies must carefully consider these consequences and balance them with their overall strategic objectives and resources.

Question 3

What is the difference between the marginal product of labour and the marginal revenue of labour?

Accepted Answer

The marginal product of labor (MPL) and the marginal revenue of labor (MRL) are two important concepts in economics, particularly in the study of labor markets and production theory. They are related but distinct concepts that help firms understand the productivity and profitability of hiring additional workers.

Marginal Product of Labor (MPL):
The marginal product of labor refers to the additional output (or product) that is produced as a result of hiring one more unit of labor, holding all other factors of production constant. In other words, it measures the change in total output that results from a one-unit increase in the labor input. The MPL can be calculated by taking the derivative of the total product with respect to labor or by finding the difference in total output when one more worker is employed.

Mathematically, if Q represents total output and L represents the quantity of labor, the MPL can be expressed as:
MPL = ΔQ / ΔL

Where ΔQ is the change in total output and ΔL is the change in the quantity of labor.

Marginal Revenue of Labor (MRL):
The marginal revenue of labor, on the other hand, is the additional revenue a firm earns by employing one more unit of labor. It is not just about the extra output produced, but also how much extra income that output generates for the firm. The MRL is calculated by multiplying the MPL by the marginal revenue (MR) that is generated from selling the additional output produced by the extra worker.

Mathematically, the MRL can be expressed as:
MRL = MPL × MR

Where MR is the additional revenue earned from selling one more unit of the product.

Key Differences:
1. Nature of Measurement: MPL measures the change in output, while MRL measures the change in revenue.
2. Economic Decision-Making: MPL is used to assess productivity, whereas MRL is used to make decisions about hiring additional labor based on revenue considerations.
3. Impact of Market Structure: The MPL is not directly affected by the market structure in which the firm operates, while the MRL is influenced by the price elasticity of demand and the market power of the firm. In perfectly competitive markets, the MR is equal to the price of the product, but in imperfectly competitive markets, MR can be less than the price due to the downward-sloping demand curve.
4. Role in Profit Maximization: A profit-maximizing firm will hire workers up to the point where the MRL equals the wage rate. If the MRL is greater than the wage rate, it is profitable to hire more labor; if it is less, the firm should hire less labor.

In summary, while the MPL focuses on the additional output from an extra worker, the MRL focuses on the additional revenue that the extra output brings in when sold in the market. Both concepts are crucial for firms in determining the optimal level of employment and understanding the relationship between labor input and profitability.

Question 4

Which of the following decreases as the number of new hires is increased?

Accepted Answer

A)   marginal review of labour
B)   marginal product of labour
C)   future price
D)   marginal cost of labour
E)   net profit margin

Question 5

Organizations that pay less than market leaders do so because they are "market driven."

Accepted Answer

A) True 
 B)False

Question 6

What are the basic assumptions of economic theories of labour markets?

Accepted Answer

The answer of What are the basic assumptions of economic...

Question 7

The nature of labour demand suggests that employers cannot change any factor of production in the short-term.

Accepted Answer

A) True 
 B)False

Question 8

The supply of labour is not affected by the degree of risk involved.

Accepted Answer

A) True 
 B)False

Question 9

Evidence suggests that organizations pay higher wages when making greater use of which of the following?

Accepted Answer

A)   job rotation
B)   research and development
C)   relying on individuals instead of teams
D)   hiring lower skilled workers
E)   personality testing

Question 10

Diminishing marginal productivity is associated with which of the following?

Accepted Answer

A)   manual review of labour
B)   labour expenditure
C)   marginal product of labour
D)   cost of labour
E)   marginal revenue of labour

Question 11

Research has shown that pay level is most important to people who are:

Accepted Answer

A)   risk averse
B)   individualistic
C)   confident
D)   entering the workforce
E)   materialistic

Exam 7: Defining External Competitiveness

An externally competitive should help contain labour costs.

What are the main consequences of an externally competitive pay policy?

What is the difference between the marginal product of labour and the marginal revenue of labour?

Which of the following decreases as the number of new hires is increased?

Organizations that pay less than market leaders do so because they are "market driven."

What are the basic assumptions of economic theories of labour markets?

The nature of labour demand suggests that employers cannot change any factor of production in the short-term.

The supply of labour is not affected by the degree of risk involved.

Evidence suggests that organizations pay higher wages when making greater use of which of the following?

Diminishing marginal productivity is associated with which of the following?

Research has shown that pay level is most important to people who are: