Justin Wolfers on the research, how pay increases influence and increase productivity

January 14, 2015

“Economists have long argued that increases in worker pay can lead to improvements in productivity—indeed, that it can actually be profitable to pay workers higher wages,” write Justin Wolfers and Jan Zilinsky in “Higher wages for low-income workers lead to higher productivity,” published on January 13 by the Peterson Institute for International Economics.

The short piece summarizes the findings of a number of studies linking higher wages to:

  • harder work,
  • more capable and productive workers,
  • lower turnover,
  • enhanced quality and customer service,
  • reduced disciplinary problems and absenteeism,
  • monitoring expense savings, and other benefits.

“All of these positive effects may interact to yield even larger aggregate effects,” writes Wolfers, “as the productivity of one worker often raises the productivity of their coworkers.”

Justin Wolfers is a professor of public policy and economics at the University of Michigan and a senior fellow with the Peterson Institute for International Economics.