What drives businesses to increase wages?

Question

In a system of capitalism, why would an employer give a raise to an employee? If I opened a business, why would I want to pay my employees more than the other businesses, and why would I provide healthcare?

Answer 1

Simple, competition in the labor markets -- there are millions of employers out there competing with you to hire the available labor pool (I once read there are 15 million businesses in the US).

If you don't offer them enough money and/or benefits, you won't be able to hire them or retain them. And that's a problem, because every business needs people in order to function and to make money, and needs to retain people because new employees are expensive to train, and unproductive for awhile until they get trained up on the job.

And this is not some abstract economic theory, I'm dealing with this myself. Intelligent, educated people capable of doing sophisticated work are rare and hard to come by. You advertise a job opening and you get no responses. You finally get someone in to interview and they're incompetent. You finally get a good person you like in, you offer them a job, but they have 5 other opportunities so you sweat bullets hoping they'll work for you, and you try to offer them enough money to get them to come.

Meanwhile you're losing business to the competition because you don't have enough human beings to produce what you could potentially sell. It sucks! That's why you pay them.

Answer 2

By profitting, you can make your employees stay longer in the company where it will benefit from company such as cut cost in training, easier to deal with customers (depending on your business)

But then again, many corporations fire those who get paid more, get in new bloods to save money