When talking about what to do about bad journalism at the BBC Chris Dillow at the Stumbling and Mumbling blog writes, with regard to the idea that better pay may lead to better journalists and thus better journalism, that:
The claim that high pay is necessary to attract and motivate good workers is not merely an economic postulate. If it were, it could apply across the wage distribution. Instead, it functions as a defence of inequality - used to justify higher pay for the rich, rather than for any job. For grunt workers, wages are a cost to be minimized regardless of consequence.I don't follow Chris's argument. That pay can be used as a way of dealing with the problem of "low quality" workers arises in cases of asymmetric information. If we face pre-contractual asymmetric information then we have an adverse selection problem. If we are dealing with a low-skilled position, so even if we don't know the skills of a worker it may not matter much or the workers skills can be verified at relatively low cost, then adverse selection may not matter much. Such positions are likely to be at the lower end of the wage distribution while positions where a worker's skills matter and are unobservable are more likely to be high skilled jobs at the upper end of the wage distribution. Thus the use of high pay as a way of increasing the proportion of high quality workers in your pool of applicants is more likely to occur at the high wage end of the wage distribution.
If we are dealing with a case of post-contractual asymmetric information then moral hazard is the issue. Here if a worker's "effort" is not overly important to the outcome or where a worker's effect can be monitored reasonably costlessly then moral hazard would not be a great problem. But again, such jobs are likely to be lower paid jobs. The big moral hazard problems are more likely to occur in positions for which effort can not be monitored and where this matters for the outcome. Such jobs are likely to be at the high end of the wage distribution so using higher pay, via say some form of performance pay, to counter moral hazard is more likely to be seen at the high wage end of the wage distribution.
Also the notion that
For grunt workers, wages are a cost to be minimized regardless of consequence.makes no sense. A profit maximising firm will select the profit maximising combination of pay and effort. While lowering pay will lower costs it can also lower profits if the detrimental effects on "effort" are large enough and thus firms will not choose this low wage/low effort combination.