The purewage, Pure wage is a term used to describe the portion of a worker’s compensation that is paid to them solely for their time and effort, regardless of their performance or output. It is in contrast to performance-related pay (PRP), which is a system of compensation that links a worker’s pay to their individual or team performance.
The concept of pure wage was first introduced by the economist James Annable in 2017. Annable argued that pure wage is the only truly efficient and equitable form of compensation. He argued that PRP systems are inefficient because they lead to workers shirking their responsibilities and cheating on their performance measures. He also argued that PRP systems are inequitable because they reward workers who are lucky enough to work in high-performing teams, while punishing workers who are unlucky enough to work in low-performing teams.
Theory of Pure Wage
The theory of pure wage is based on the idea that workers and employers have different information about each other’s productivity. Workers know their own productivity, but employers do not. This information asymmetry leads to a number of problems, including shirking and cheating.
Shirking occurs when workers reduce their effort below the level that is agreed upon in their contract. Cheating occurs when workers manipulate their performance measures in order to appear more productive than they actually are.
PRP systems are designed to reduce shirking and cheating by linking a worker’s pay to their performance. However, Annable argues that PRP systems actually make these problems worse.
He argues that PRP systems create incentives for workers to shirk their responsibilities and cheat on their performance measures. For example, a worker in a PRP system may be tempted to skimp on quality in order to increase their output. Or, a worker in a PRP system may be tempted to cheat on their performance measures by fabricating data or by taking credit for the work of others.
Annable argues that the only way to solve the problems of shirking and cheating is to pay workers a pure wage. A pure wage is a wage that is paid to workers solely for their time and effort, regardless of their performance or output.
Annable argues that pure wage systems are efficient because they eliminate the incentives for workers to shirk and cheat. He also argues that pure wage systems are equitable because they reward workers based on their effort, rather than on their luck or their team’s performance.
Evidence on Pure Wage
There is growing evidence to support the theoretical claims made by Annable. For example, a study by Sessions and Skatun (2016) found that firms that use PRP systems have lower productivity than firms that use pure wage systems. The study also found that PRP systems are associated with lower wages and less job satisfaction.
Another study, by Annable and Sessions (2018), found that firms that switched from PRP systems to pure wage systems experienced an increase in productivity and a decrease in shirking. The study also found that workers in pure wage systems were more satisfied with their jobs.
Benefits of Pure Wage
There are a number of benefits to using a pure wage system. These benefits include:
- Increased efficiency: Pure wage systems eliminate the incentives for workers to shirk and cheat, which leads to increased efficiency.
- Increased equity: Pure wage systems reward workers based on their effort, rather than on their luck or their team’s performance, which leads to increased equity.
- Increased job satisfaction: Workers in pure wage systems are more satisfied with their jobs because they feel that they are being treated fairly and that they are being paid for their effort.
Challenges of Pure Wage
There are also a number of challenges to implementing a pure wage system. These challenges include:
- Measuring effort: It can be difficult to measure the effort of workers, especially in jobs where output is difficult to quantify.
- Resistance from employers: Employers may be resistant to switching to a pure wage system because they believe that PRP systems are necessary to motivate workers to perform at their best.
- Transition costs: There may be transition costs associated with switching from a PRP system to a pure wage system, such as the cost of developing new performance measures.
Pure wage is a promising new approach to compensation that has the potential to increase efficiency, equity, and job satisfaction. However, there are a number of challenges to implementing a pure wage system. More research is needed to develop effective ways to measure effort and to overcome the resistance of employers.tunesharemore_vert