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Treatment of employees in a global marketplace

I would like to have your point of view on this problem. There is no right or wrong answer and I know that people will answer differently. I myself am leaning towards Chan's argument. Please let me know what you think, and please defend your answer. You can choose to agree with Cheung!!! It would be interesting to see what others think and how the argument can be defended. A clear written explanation is enough, but feel free to use graphs, numerical examples, or anything else to strengthen your argument.

Two Hong Kong businessmen, Chan and Cheung, are having an argument.

Chan makes the following statement:

"The business world has become more competitive. If we are to compete with firms in Singapore, Indonesia, and Malaysia, we must keep our costs down. Labor accounts for 75% of our costs. We cannot afford to compete if we keep paying such high wages to our workers. I think that we need to go for cheaper labor to make it in this business."

Cheung replies:

"In today's world, quality is everything. It is impossible to produce good products without good people. I go for the best workers, irrespective of cost. It is false economy to try to save money on labor. If we go for the cheapest workers who have not yet been trained up to Hong Kong Standards, we will suffer."

Both statements are extreme. Which is closest to being right and why? Defend your answer.

Solution Preview

I think that indeed you don't need to worry about whether your answer is right or wrong. However you need to support whatever answer you choose. Whatever answer you choose, you should mention efficiency wages. The efficiency wage hypothesis argues that wages are determined by more than simply supply and demand. Wages tend to be higher than necessary to provide an incentive for employees to improve productivity or efficiency. This increased labor productivity pays for the relatively higher wages.

Consider for example that if your company pays low wages, there are probably lots of other places these employees could go that would pay likewise. Why should they work very hard? They will not care if you fire them. Moreover, you will have gone to the trouble of training them only to lose them, which ends up ...

Solution Summary

Balancing employee satisfaction against the need for profit.

$2.19