A simple way to see productivity from the employee perspective

The relationship between wage and productivity is not a straightforward one.

We are told that wage increase should be supported by productivity increase. Is this always true at the micro level?

An employee who is paid below the market rate will not feel the need to produce. In fact, given a choice, he or she will probably not stay; just as why a new hire who is offered a salary below the perceived market rate might not want to sign on the offer letter.

Therefore, it is unrealistic to ignore this perceived “fair wage” in the productivity equation.

At a low-wage level, all things being constant, wage probably drives production (and productivity). In fact, a reasonable wage increase could lead to a more than proportionate increase in productivity. (The blue curve in the yellow region).

Beyond a certain point, wage ceases to drive productivity. "I'm already highly paid, how does wage increase motivate me to be more productive?"

At a high-wage level, the presumption that productivity should drive wage increase becomes true. (The red curve).

The conclusion: Impute all the BASIC costs into the business (reasonable salaries, basic training, functional equipments) and if the enterprise cannot make a profit, perhaps the underlying issue is not one of low productivity. But low revenue.