Kwashiorkor (deficiency) wages ...

The Ghanaian worker’s productivity may not be that low; perhaps Kwashiorkor (deficiency) wages rendered it so!

h Many research have found the Ghanaian worker to be of an extremely low productivity level: I read a UN study, published on Ghanaweb, which found, using wages of Ghanaian workers that a Ghanaian worker is too unproductive to cause any meaningful contribution to economic growth. This finding, as well as many other similar ones, has been readily accepted by Ghanaians because it’s in tune with the conventional wisdom that African workers are unproductive and also because it was done by UN (For some reason, most people regard the sayings of the UN to be the indubitable Gospel). However, as I always preach in all my articles, conventional wisdom, whether reiterated by the UN or the most skilled researcher, needs to be challenged on grounds of its validity. Obviously, the UN study assumed (controversially) that the wage of a Ghanaian worker is a true reflection of his or her productivity (better known as marginal productivity of the worker) ; Such an assumption is valid only in competitive labor markets (ie market with numerous employers with numerous employees) with perfect information (ie information about the labor market is well disseminated so that employers are able to infer the productivity level as well as every relevant characteristic of employees and likewise workers have a good sense of all job opportunities and their characteristics available to them). Of course, one could easily argue that there is nothing like a purely competitive market with perfect information. However, in most developed countries, where there are numerous employers within industrial sectors (and even within their respective subsectors) and good information systems (internet sites that advertise jobs, databases that keep track on criminal and other relevant job activities of all citizens, etc), the assumption of a competitive and perfectly informed labor market might not be so bad; hence, in that scenario, one could argue that wages are good proxies of workers’ marginal product(ivity) of labor (or simply, productivity level). However, in our Ghanaian economy, where the number of employers could be counted using the fingers on a hand, and where one has to roam like a restless wanderer to find information about a job opening, labor markets are far from being competitive and perfectly-informed. Verily, in such an environment, employers would exploit workers by offering very low wages because jobs are scarce, workers are not well-informed about job openings and the jobless are in bountiful supply. Hence, any research that, without correcting for these market imperfections, uses wages of Ghanaian workers as a proxy for productivity is fundamentally flawed and hence more likely to underestimate the productivity of the Ghanaian worker. Also, a study that rather uses the number of efficiency/productive units (proxied by the number of goods or services) produced by a worker in a given amount of time as a proxy for worker productivity in Ghana would be an improvement to the former but, as I would argue later on, is also an underestimation of the true productivity of the Ghanaian worker. This is because the exploitation of workers in Ghana (the phenomenon that employers offer wages extremely lower than the competitive wages –values of the marginal product of workers) disincentivize Ghanaian workers from giving their all at their respective work places and hence their observed output is lower than their true productivity. Indisputably, Ghanaian workers are of lower productivity compared to workers in the developed world because of obvious reasons—non-practical academic curricula, low level of on-the-job training, etc. However, deficiency wages (wages below the competitive wage of the worker) cause Ghanaian workers to exhibit a productivity level even lower than their true already-low productivity level. Hence, a researcher is more likely to erroneously conclude that Ghanaian workers are good for nothing. In this article, I tell a simple story that illustrates how deficiency wages could incite workers to exert effort or productivity levels lower than their true levels. The employee, once hired, could choose his effort level (Employee is a neutral gender but I would use the masculine pronoun for simplicity sake); he could choose whether or not to shirk. In this framework, the non-shirker would be honest, hardworking, and offer his best in his dealings with the firm while the shirker does the obvious. As an employer, it's extremely hard, in most cases, to monitor the effort level of employees for reasons that should be obvious to the reader: For instance, if it's a store manager-store keeper kinda relationship, the store manager can't always be at the store monitoring the activities of the store. If it's a proprietor-teacher relationship, the proprietor might be too busy doing other activities to be ensuring that the teacher is offering his best in the classrooms. Because of this difficulty of being monitored, the employee finds it strategically optimal to exert the least effort--shirk! Of course, who would work like a bull-dog when he knows he could get by with a sloth attitude: Apart from knowing he is monitor-free, the employee who is paid the market wage, or less doesn't feel threatened to lose his job because he knows he could get the same wage at some other place in case of a job-loss.

Efficiency wages (wages that exceed the workers’ competitive market wages) therefore provides a means of inciting the worker to naturally portray his true productivity level at the work place. Of course, it would be very absurd for anyone to close his mouth when honey is dripping in. Also, despite its seemingly expensive nature, at least from a firm’s perspective, efficiency wages are beneficial and profitable to the firm: When offered efficiency wages, workers, scared to lose these attractive benefits, have no other choice than to do anything to keep their job. Because appreciated workers give their all, and are generally relatively happier and healthier (especially mentally), they tend to be more productive at the workplace and hence cause profits to explode: A cedi/hour increase in wage could therefore cause an hourly increment of 4 cedi worth of productive units per worker. Kwame Despite--a single soul---is able to successfully manage numerous businesses because he understands the principle and power of efficiency wages. Kwame understands that being cheap normally turns out expensive! The lack of Efficiency wage underlies the high level of employee dishonesty in numerous Ghanaian firms (if your father manages a store, you would know what I am talking about!).; unsurprisingly, it is one of the key reasons to the sad failure and collapse of the public sector in Ghana.

Indeed, our ancestors were right when they said, “Kwan Kyen adee efe, nanso yede sika na eto.” As a firm and nation as whole, we should strive to cut down costs whenever we can. Nevertheless, cutting down cost by under-appreciating the worker eventually turns out to be costly. Workers, being humans, are innately selfish and would only offer their all if it’s in their best interest to do so. Our public firms could do much better if they could offer higher wages coupled with stringent credible threats of dismissal if caught shirking. I have no idea of the true aggregate productivity level of Ghana; however, I could boldly assert, despite findings of whatever studies on Ghanaian productivity, that our nation’s output is not a true reflection of what Ghanaian workers could potentially give when the right incentive schemes are provided. God bless Ghana!

Footnote: A remarkable boon of this article is its free consulting advice to future and present business owners: Pay workers above the market wage. When this works for you, don't forget to pay me the consulting fee whenever you see me (lol).