In a time of economic boom, it is often difficult to hire workers cheaply. This is especially so when the demand for workers with particular skills or industry experience far outstrips the supply. But of course we have to appreciate cheap in relation to the market rate. If you hire a worker that is significantly below the market rate, then that would be considered cheap and vice versa. Of course when you hire the worker, it is the entire package, his wage, benefits, bonuses, training period and costs and more that determine his cost of securing his labour.

There are many extremes when it comes to employers. The supposedly generous employers tend to be the MNCs who pay lavish amounts not just in wages but also benefits and training to secure the top talent. To them, they are willing to pay top dollar for top talent. Of course what is also implicit is that they work them hard to get the top results.

There is the other extreme, the locally owned companies, who tend to see employees as costs. To them the cheaper they can hire the worker, the more they maximize their profit. The worker is hired to do a particular job and they should get the job done in any case. So paying them more than "necessary" is only tantamount to reducing the company’s profitability. They totally fail to understand why workers work, what motivates them, how to retain workers and how to bring the best out of the workers.

So getting back to the question of this article, we do know that expensive and good workers exist. This is especially so when you consider that the average worker gets the average wage or the market rate. And following this argument, the lousy worker gets below the market rate. This sounds like a reasonable relationship especially if you consider that workers who are not up to the expected level of competence can be sacked by companies during their probation period and beyond.

And if you follow that argument, you will find that the cheap and good worker is indeed an anomaly or a freak of nature. It is hard to understand why locally owned businesses, especially those owned by local entrepreneurs still try their best to achieve this outcome.

Perhaps we should first delve deeper to try to understand their intentions in hiring cheap and good. As mentioned earlier, there is lack of understanding about why workers work, what motivates them, how to retain them and how to bring the best out of them.

Let us start first with the Entrepreneur. The classic economics model is one whereby the Entrepreneur combines the factors of production, namely land, labour and capital to produce goods for the customers. Here labour is regarded similarly to labour and capital as rather liveless objects. The Entrepreneur is only interested in purchasing these factors at the desired level of efficient use and at the cheapest possible price. This allows him to maximize profit. And so that is the mentality that these Entrepreneurs bring to the process of hiring workers.

That is why they inherently seek cheap and good workers.

Of course, this should not be viewed from a right and wrong perspective. We are just applying theories and concepts to understand behaviour.

Of course, anyone knows that labour is a very different factor of production from land or capital. Labour comes with its own set of moods and emotions and motivations. Its efficiency can vary quite drastically and is dependent on a huge set of variables. Thus an enlightened Entrepreneur would have to handle Labour differently from Land and Capital.

Entrepreneurs would love to do everything themselves. Unfortunately due to scarcity, this is not possible. They have finite time and effort. Thus they have to hire workers who do part of the job for them. At the lowest level, these are functional workers who do rather menial functional tasks like bookkeeping, simple logistics, data entry and other simple service functions. But even at this level, the clear motivation is spelt out by the Disgruntled Worker’s Equation. Either the pay compensates the work or the Environmental Factors, Job Satisfaction or Future Benefit. Of course the profit maximizing Entrepreneur would love to work his workers more and pay them less. Unless of course he appreciates the DWE, but even if he does, he still balances the long term cost and benefit of hiring the worker and immediate profitability.

Looking at long term cost and benefit, we have to assume that a motivated worker brings more benefit to the company than the cost of employing him or her. This is not clear and thus the Entrepreneur has to balance any increase in pay with the assurance of more benefit. However when you consider the fact that the value a worker brings to a company is usually 5 to 10 times that of his cost, then clearly the black ink is on the side of the Entrepreneur.

But let us drill into some tangible costs for the Entrepreneur. There is rehiring cost which includes time and effort to train the new staff. There is delay and disruption cost if the new staff does not come in on time. And a high turnover rate is a damper on staff morale for the rest of the company.

Even in the case whereby an Entrepreneur hires a good worker below the wage rate, over time the DWE will balance things up. The worker will be come disgruntled and leave. Else he would stay and become a bad worker.

Of course it is also not possible to ascertain that you have hired a good worker from day one. Hiring someone cheaply just means that the worker is willing to undertake an "investment" in terms of wage forgone to show to the employer that he or she is a good worker. Overtime, there is that expectation of more pay, especially when the work performance has been good. And if the worker does not get that wage adjustment inline with the work performance then he or she would also become disgruntled and leave.

So really if you think about it the DWE is like an equilibrium point that ensures that good workers get good pay and not so good workers get not so good pay. And this is all held together wonderfully by market forces. There is certainly truth to the statement that if you pay peanuts, you get monkeys.

The only way to have a cheap and good worker is to have good Environmental Factors, lots of Job Satisfaction and lots of Future Benefit. But of course these also contribute to the cost of the workers. Time taken to manage and motivate workers is also a cost. At the end of the day the cheap and good worker is a short term abnormality. Overtime the disequilibrium will be corrected and a new equilibrium will be established.

Hope that answers the question as well as the doubts pertaining to that question.

So does this mean that Employers or Entrepreneurs are held to ransom over paying market rate? Here are some suggestions, some food for thought, which can result in win-win situations.

Any opinions or comments ?