Finding domestic help is very hard. Even harder is retaining such help assuming you do find them, and next to impossible if they are good. One response to this problem has been the mushrooming of ‘agencies’ offering placement services of maids, cooks or drivers in exchange for a commission, often equivalent to two or more months’ salary. These contracts, renewable every 11-12 months, are unstable if not uneconomical arrangements.

A number of forces have contributed to the market for domestic workers taking this shape over the last decade or so. The first is liberalisation and economic growth, which have brought about an expansion in job opportunities for both skilled and unskilled workers. In addition, several welfare programmes initiated in the last few years provide wage support — either directly through MGNREGA or indirectly in the form of highly subsidised foodgrains, mid-day meals to schoolchildren and other in-kind entitlement benefits.

All these have increased the value of what we call the ‘outside option’, that is, the benefits to be derived from choosing the next best alternative job. Unless the benefits from an alternate job are large enough, a worker will not want to switch from the job he/she is already doing.

While working at construction sites in cities may provide an attractive enough ‘outside option’, one cannot really say this about the job of domestic workers. The latter have to work long and odd hours, while engaging in every conceivable task from cooking and baby-watching to cleaning, washing and gardening. Why do this when the individual might as well stay in the village and do MGNREGA work and some seasonal farm labour?

Consequently, while rising middle-class incomes in recent times have driven up the demand for domestic workers, their supply corresponding to the ‘outside option’ has gone down. It has led to an increase in wage rates in this market, but probably not enough.

The ‘shortage’ of domestic workers we are seeing is, perhaps, only a consequence of their not being offered equilibrium market wages. This has a lot to do with middle-class attitudes that haven’t kept up with the new growth realities and even their own rising incomes. Wages in the domestic worker sector have simply not grown.Hence our first suggestion if you want to hire domestic help is: Offer equilibrium wages. When negotiating, think of the alternatives before the same workers and also the rate at which your own income has grown.

Efficiency wages Our second suggestion is that having hired the domestic help that you now wish to retain, go beyond even paying equilibrium market wages. Pay higher than market wages — what economists call efficiency wages. Henry Ford tried this first in 1914 and found the company’s productivity and profits going up significantly.

The efficiency wage theory suggests that if an employer pays higher than market wages, it will first of all ensure that workers don’t shirk their duties.

The reason is they will be afraid of losing a job paying more than what the market would pay. Second, since the incentive to shirk is reduced, it also means you don’t need to monitor them all the time. So you save on monitoring costs, unless you are one of those control-freak nags that some of us probably are. Third, to the extent efficiency wages lead to lower turnover, the employer will also save the cost of training a new domestic worker every few months. The efficiency wages hypothesis argues that the benefits are large enough so that the cost of paying the higher wages is well worth it. Sociological models also relate this theory to notions of fairness. According to these, when workers believe they are being paid more than the market wages, they might feel morally obligated to reciprocate the kindness of their employer by working harder.

Besides, there are indirect benefits. An employer paying efficiency wages automatically minimises the likelihood of being saddled with shirking workers.

Minimum vs efficient Shirking workers often tend to keep out of jobs paying higher than market wages since they are conscious of their own limited abilities making them not good enough to retain even current jobs. The more diligent workers, however, are more likely to be attracted to the efficiency wage-paying jobs, signalling their better skills and ability. How do state-mandated minimum wages relate to efficiency wages? The former clearly has to be an above market-equilibrium wage; otherwise why would government intervention be needed at all?

A minimum wage draws upon notions of morality and equity. Its implementation is seen to improve living standards of the poor, provide them dignity of labour, and reduce poverty. To the extent of being above market-clearing wages, minimum wages would have all the benefits of efficiency wages. But the difference is that minimum wages have to be compulsorily paid in all sectors. Efficiency wages, by contrast, are meant for sectors with high labour turnover rates. It is in the employers’ own interest here to pay these wages without being prodded by a nanny state.

One criticism of the efficiency wage theory is: What if everyone has the same bright idea and decides to pay efficiency wages? Won’t this create excess supply in the market, leading to unemployment?

Well, the efficiency wages hypothesis does not necessarily imply an unemployment rate greater than the natural rate of unemployment. Nor does it mean that workers who are unable to find a job in a sector that pays efficiency wages cannot work in some other sector at lower equilibrium wages.

In any case, however, it is highly unlikely that all of middle-class India will offer efficiency wages simultaneously, creating a glut in the market for domestic workers.

In fact, given the remoteness of this possibility, the next time you are able to find a hard-working employee, go ahead and do something truly different: Pay efficiency wages. See it as an opportunity, a win-win for both you and him/her.

Sarangi teaches at Louisiana State University. Jha is a doctoral student

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