ABSTRACT

Classical economists argue that wage rates represent the price at which the supply and demand for labour coincide (Sapsford and Tzannatos 1993). Whilst organisations may position their pay structures in relation to what they perceive as the 'going rate' for the relevant types of work, and structural shortages are likely to lead to increases in salaries for the group in question, the theory is inadequate as a means of explaining pay practice. It does not tell personnel practitioners how to deliver a stable pay structure, nor how to allow for the serious lags and imperfections in the market. Nor does it provide personnel managers with a satisfactory way of grading and paying jobs that are unique to the organisation (Sapsford and Tzannatos, 1993; Jacobsen 1998: 203-342). Macro-economic theorists also have difficulty explaining how economic forces result in discrimination in favour of some and against other groups of employees, apparently regardless of the relative efficiency of these groups.