IV.

FORMS OF WAGE PAYMENT

Prof. Turner said that he would comment on systems and forms of

wage payment in developing countries, including the question of
social benefits as an alternative to direct money wage payments.
Very little has been written in an analytical way about the various
forms of wage payment and, for example, Prof. Aziz's paper is rather
pioneering in its references to social benefits as an alternative to
wage payments.
Perhaps the best way to approach this whole field of questions is to
ask which payments are variable with output and individual
productivity, and which payments ought to vary in this way in de-
veloping countries. All the questions concerning the forms and
systems of wage payment raise this point: the question of whether
there should be piece-rate systems as opposed to time-rate systems;
the merit or otherwise of incentive payments generally; the question
of the elements in wages which may be independent of productivity -
cost-of-living bonuses, fringe benefits, pensions, holiday pay, sick pay,
forms of guaranteed earnings, etc. ; the role, particularly in less-
developed countries, of payments which are related to the personal
circumstances of the employee rather than to obvious economic
considerations- marriage allowances, children's bonuses, etc. The
question of the difference between wages and salaries raises this
variability issue quite sharply and becomes a policy matter when there
are demands for the transformation of wage payments into salary
payments; for such a transformation affects the ease with which
workers can be dismissed (longer periods of notice etc.) and thereby
makes the wage payments less variable with productivity. And the
role of social benefits, in effect, raises this issue too, since they may be
regarded as a form of wage payment which is related to workers'
needs rather than productivity.
Prof. Turner thought it possible to speak of a natural history of
wage systems. There are a number of reasons for expecting that in
the early stages of industrialisation, wage systems and forms of
payment will be so arranged that wages are very flexible - even more
than proportionately- with output. Firstly, a finn establishing
itself for the first time in a new industry in a comparatively under-
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A. D. Smith (ed.), Wage Policy Issues in Economic Development

© The International Institute for Labour Studies 1969
 Forms of Wage Payment
developed economy is faced with very large market risks. Because it
is uncertain of the level and stability of demand, there is an incentive
to limit fixed costs and make them vary with output as much as
possible. Since, in a less-developed economy, labour represents a
much higher proportion of costs, this means, particularly, that
labour costs should be as variable as possible.
Secondly, capital is relatively expensive and this means that
employers have an interest in assuring that their equipment is as
fully utilised as possible. In turn this is conducive to wage forms
which encourage workers to produce as much as possible in their
working time. Thirdly- and Prof. Turner thought that this is a
particularly important consideration - managerial and supervisory
resources are very scarce in developing countries. As a result, a
great deal of the responsibility for management, for efficient pro-
duction, has to be thrust on the worker himself. Similarly, because
maintenance mechanics, etc., are very often not available, the
employer must transfer, in some measure, responsibility for main-
tenance to the worker. To achieve these two objectives, the employer
adopts a system which remunerates the worker very closely in relation
to his output.
Fourthly, in these conditions, the worker himself prefers a system
in which payment is fairly closely related to production. Such a
system affords a defence against 'speed-up' which obviously is much
more possible at a primitive level of industrialisation than at an
advanced level, and ensures that some of the gains from productivity,
which may rise very fast in the early stages of industrialisation, are
passed automatically to the workers.
As development proceeds, one would expect the variability of
wages with respect to output to diminish. Work norms become
established and the variability of workers in their day-to-day
performance and between individuals becomes less. Managerial,
technical and supervisory skills become more plentiful. And whilst,
therefore, it is no longer necessary for the employer to put responsi-
bility for productivity on the worker, he now needs to calculate his
costs more finely. There is an interest on the employer's side to
stabilise his labour costs and to extract as much as possible from the
fixed labour bill in terms of physical productivity.
At the same time, the workers' organisations develop. In Prof.
Turner's view, trade unions tend to be hostile to incentive payments,
since equal pay for a given grade of worker makes for more solidarity
and such standard rates are easier to bargain about. The workers
103