Question

Sequencing pay increases over workersâ careers is thought to provide incentives for greater productivity. More specifically, paying workers below their marginal revenue product early in their tenure and then above their marginal revenue product later in their tenure is thought to increase worker productivity and to lower costs. Explain why this might be the case.

Answer 1

This is the case for two major reasons. Primarily, employers are not aware of the quality of the workers so initially they are better off with paying a lower wage and later on a higher wage. Paying a wage below their marginal revenue product early in their tenure does not discourage workers because they also realize that they need to qualify for a higher compensation so they work industriously. Workers are willing to work with the same employer and do not want to be shirked early on so they continue to work even at a lower wage, as they expect a higher wage rate with the passage of time. This increases productivity. This also discourages potential shirkers and inform the employers who is a shirker and who works diligently. In this sense, Sequencing pay increases provide incentives for greater productivity.