An efficiently run business is optimized for productivity and cost. This means the business spends the least amount of money it can to create the highest level of productivity. This philosophy applies easily to costs like materials and shipping needs, but some research suggests low labor costs may not necessarily be the best way to achieve a high level of efficiency.
Anatomy of Labor Costs
The cost of labor isn't just what a workforce is paid hourly or annually. Labor costs include the money spent to train workers, worker's compensation insurance, installing worker safety measures, offering worker benefits like health insurance and anticipated wage increases. Labor costs factor into how efficiently a business operates because it can effect how money is spent elsewhere in the business. A high labor cost may mean a business spends less on other necessities like advertising and marketing.
Streamlining Costs for Protfit
Cost efficiency is a major contributor to the success of any business. Increasing efficiency in the area of labor costs allows an employer to save money while achieving the same level of productivity. A business can help maximize its profit levels by keeping its labor costs low for optimal efficiency. A business that spends too much on its labor costs can ruin its profit margin because it gets eaten up in workers' wages.
Efficiency Through Employee Investment
Another way a business creates higher efficiency through its labor costs is by paying employees competitive wages designed to attract the most qualified candidates. A business with higher paid employees may run a smaller staff but achieve a higher level of efficiency because those employees are diligent, well-qualified and buoyed by a sense of commitment to the business that comes with a high rate of pay and a benefits package that may include health insurance and a retirement account. These workers usually have experience in the field before being hired and cost less to train than workers with no relevant experience.
Cheap Outsourcing is a Myth
Many large U.S. corporations have outsourced jobs overseas to countries like China and India in an effort to lower labor costs and maximize profitability. This strategy may not pan out as well as larger businesses had hoped due to the need to train unskilled foreign workers and continue to keep up with new advancements in technology. According to Industry Week, these lower-paid workers also produce less per hour than U.S. workers, which all but equalizes any advantage a business may have received in paying lower wages.
