Analysis Of Compensation Incentives Based On Efficiency Wage Model

The key objectives of study of economics is to solve the unemploymentproblem.To resolve the issue,scholars created wage rigidity theory and efficiencywage theory. The efficiency wage theory is two2001Nobel laureates ineconomics-Spence and Stiglitz’s outstanding contribution when they researched theasymmetric information market. Efficiency wages means the company paying tohigh-quality talent than the market average much higher wages, a kind of incentivecompensation system to promote high-quality talent working hard, is mainly toattracted and encouraged high-quality talent and then to create greater value for theenterprise and to maintain the sustained and stable development. Spence and Stiglitz’sresearch shows that the major reason for unemployment is laborer’s marginal outputmore than marginal labor negative utility. When the labour market existingcompetition relations, laborer’s marginal output equals marginal labor negative utility.In other words, When labor wages is higher than the labour market-clearing wage,thelabour market will appear on unemployment.This paper, through the research of efficiency cost theory and its models, trys toovercome the deficiency of the existing models, and then establishes a efficiencywage model considering the laborer’s professional ethics (or moral factors), absoluteand relative wages, unemployment rate and monitoring costs and other factors. Inaddition, consider to workers’ effort degree function affected by various effects, andaccording to the mandatory savings hypothesis, laborers prefer combination ofincreasing consumption to constant consumption combination,so in order to meet theincreasing consumption combination, workers preferences in increasing salarycombination. Half of the article establishes a model allowing for workers’professional conduct and the efficiency wage growth rate. The paper first summarizes efficiency wage theory,models, and current researchtrends to find out the reference of the related research for this paper. And thendiscusses the inadequate and needed to be improved part of the Solow model and theShapiro-Stiglitz model of efficiency wage theory. Chapters III and IV is the corechapters, they introduce the two improved efficiency wage model. The third chaptersets up a model considering the laborer’s professional ethics (or moral factors),absolute and relative wages, unemployment rate and monitoring costs and otherfactors. The model relys on several characteristic values of the labor’ attention degreeon unemployment, wages and supervision, displays the interaction mechanism amongthe incentive cost, labor efficiency and the natural unemployment rate. The fourthchapter,in accord with basic assumptions in the model of efficiency wages,establishes efficiency wage growth model, puts forward key equation of efficiencywage growth model, and the equation implied determine the optimal growth rate ofefficiency wage. In addition,the fourth chapter also analyzes the relationship betweenefficiency of the optimal growth rate and discount rate, manufacturer productiontechnology and workers preferences. This part is also the innovation points of thispaper. The two models will be basiced on efficiency wage theory. Try to explainmutual mechanism among compensation incentives, the oversight mechanisms andlabor efficiency.