Compensatory Payments and Labor Productivity of Industrial Cooperatives in Iran
Saber Zamani Shabkhaneh
The performance of a cooperative organization depends to a large extent on
the productivity of its workforce and determines its survival and growth. It
is therefore, imperative for cooperatives at national and local levels to explore
ways of improving and updating environmental facilities in order to make the
workforce more conducive and productive. The main objective of the study is
to find out, whether any increment in wage payments of the laborers in industrial
cooperatives, can be as an effective measure to cause a substantial increase
in the rate of industrial cooperative's value added. For this purpose and in
order to investigate the effects of compensatory payments received by the employees
on their productivity, the Cobb-Douglas model and panel data regression analysis
were designed to analyze the productivity performance of laborers working in
industrial cooperatives of 30 provinces during the period 2006-2008. The results
showed that the variable of compensatory payments including direct and indirect
wage payments have positive and significant effect on Irans
industrial cooperative's value added. That is concluded that any increase in
wage can cause labor productivity increase in production in such a way that
1% increases in wage payment raises the average added value of industrial cooperatives
by 0.184% while, 1% increases in other payments raises the average added value
only by 0.124% in this sector.
Received: June 08, 2012;
Accepted: August 27, 2012;
Published: December 05, 2012
Most of the economists believe that every countrys feature and development
process is identified first by human sources quantitatively and qualitatively
and then by natural sources and physical asset (Todaro, 1998).
Moreover, that is truly said that the wealth of a nation as well as socio-economic
well-being of its people depends on the effectiveness and efficiency of its
various sub components. Labor is generally regarded as the most dynamic of all
the factors that are employed for the creation of wealth, having the potential
to energize and serve as catalyst to all of the other resources (Yesufu,
2000). Theoretically, the success in productive human capital investment
will afford an upcoming advantageous for the members of cooperative enterprises
in the form of better supports and services (Andri, 2006).
Productivity is of fundamental importance to the individual worker of whatever
status, to the organization whether commercial or not and to the national economy
at large and accordingly therefore, to the uplifting the welfare of the citizen
and the reduction if not total eradication of mass poverty (Akinyele,
2007). In this regard, wage should be identified in a way that wage increase
with having impact on staffs working will raise their productivity.
Cooperatives involve a group of people based on common beliefs of Participation
and making value added and profitability is among the main goals of organizations
and economic firms including cooperative societies. These sorts of organizations
play an important role in making decisions by the members active Participation
(Alvarez, 1999; Ilskog et al.,
2005). Participation means motivating people and increasing their understanding
and capability in order to response development plans that have strong relation
with the rate of success in human resource management. In other words, participation
involves people's interference in decision making process, plans performing
and sharing the interest of the development plans and interfering in evaluation
of plans (Shahraki et al., 2011). Many studies
indicated the important role of individuals participation in cooperatives
success and development (Huntsinger and Fortmann, 1990;
Ladele et al., 1994; Finsterbusch
and van Wicklin, 1989; Fleischer and Applebaum, 1992).
These studies focus on the subject that collective and participation approaches
are useful for desired management of human resources for making more effective
decisions on optimizing the profitability of the organization. Baticados
(2004) emphasized the important role of members integration and durability
of small group's participation in exploiting resources and success of cooperatives.
Now-a-day, effective participation of Laborers for making more constant use
of resources with economical as well as environmental value has become a principle
(Mbaiwa, 2005). On the other hand, observations done
by international foundations such as International Cooperative Association (ICA)
emphasize the issue that the cooperative societies have direct and indirect
impact on social and economic development of the communities under their coverage;
so that activity variety and commercial scheduling have rendered these purposeful
institutions can be known as among the largest firms in goods production, distribution
and consumption besides being job creator and profitable. Simmons
and Birchall (2008) believed that in the line of growth, development and
livelihood improvement, the growth tone should be in compliance with centrality
of social justice and from this point of view cooperatives are considered the
best mechanism for stable development and of the factors of poverty reduction.
For many reasons, Birchall (2003) believed that development
of cooperatives caused the economic sector to be known as a good model for poverty
reducing and increasing social welfare of the community. In an investigation
about farmers organization in Turkey, Kocturk (2006)
concluded that the cooperatives could not be activated because of the lack of
interest of their members and are in need of professional management and financial
support to make them successful. Regarding the marketing efficiency of cooperatives
in Iran, Kheirandish and Gowda (2012) revealed that
in many cases the cooperative societies and processing companies are not involved
in the marketing of their products because of the inefficient performance of
the cooperative. The main objective of this study is to consider the relationship
between compensatory payments (Direct and Indirect payments) and labor productivity
in industrial cooperatives of Iran during the years 2006-2008. In other words,
to say whether any increment in wage payments of the laborers in industrial
cooperatives, could be considered an effective measure to cause a substantial
increase in the rate of industrial cooperatives value added.
COOPERATIVE SECTOR IN IRAN
At present the economy of Iran is the seventeenth largest in the world by Purchasing
Power Parity (PPP) and twenty-sixth by market value (World
Bank, 2010). That is a mixed and transition economy with a large public
sector and some 50% of the economy centrally planned (Economist,
2003). According to the Article 44 of the Iranian Constitution, the economy
of Iran consists of three sectors: state, cooperative and private. The cooperative
sector is to include cooperative companies and enterprises concerned with production
and distribution, in urban and rural areas. By virtue of Cooperative Sector
Law, cooperative societies under Ministry of Cooperatives are classified to
create job for members, to meet needs and to boost competitiveness of Small
and Medium Enterprises (SMEs) and to satisfy members welfare requirements.
A survey by Ministry of Cooperatives revealed that share of cooperative sector
in GDP has been 1.6% in 1994, 2.82% in 1996, 3.5% in 1998 and about 5.5% share
in 2005 (Cooperative Ministry, 2011). The fifth development
program on Iran emphasis on the importance of cooperative sector and making
effort to obtain 25% portion of economic activities at the end of the program
has brought about the necessity of paying attention to this important economic
sector more than ever to reach long and short-term aims of job creation and
poverty reduction (Najafi, 2009). Of course, it should
be mentioned that, despite the importance of cooperation sector in the country,
this activity sector of the economy couldnt yet reach its real position
and powerful merits. Since the current approach of economic policy making in
line with the countrys perspective document is private sector growth and
development and government minimization, one of the ways of absorbing small
capitals and developing nonpublic sector can be cooperatives reinforcement to
make added value, employment and economic growth that is the result of their
economic activity. For this purpose its necessary to consider the factors
influencing economic efficiency of this sector including labor productivity
increase. The purpose of the present study is to answer the fundamental point
that whether the changes in the amount of staff services compensation in industrial
cooperatives of Iran could bring a meaningful impact on labor productivity of
this sector during the course of study?
MATERIALS AND METHODS
Productivity so defined by McBeath (1996) is a measure
of how well resources are brought together in organizations and used for accomplishing
a set of results. Based on this view, productivity implies reaching the highest
level of performance with the least expenditure of resources. To investigate
the importance of the labor productivity issue and thereby the socio-economic
growth, a lot of studies have been done through production functions assessment
such as Trans-log production function and CES production function by involving
the variables affecting labor productivity increase and subsequently economic
growth. Among the variables which can be discussed are the added value, capital
volume, labors skill and specialty, actual wage, taxes and subsidies and
credit facilities. Also, some studies have been done relating to influence of
the actual wage variable and compensatory payments on labor production increase
and thereby economic growth which are generally based on the theory of efficient
wage. In this study, the panel data method has been used; sections included
30 provinces for the duration of three years. The general form of panel data
method can be investigated as follows in which there is N sections, K variables
and T period (Eq. 1):
In this study, Cobb-Douglas production function is used for the reasons of
simplicity, high description ability and its high application in economic studies
and also through the feature of possibility of substitution between factors
in the course of production. The general model of Cobb-Douglas production function
is considered in Eq. 2:
||Actual production of industrial cooperatives sector with ten
workers or more
||Employment in industrial cooperatives sector with ten workers or more
||Actual capital volume in industrial cooperatives sector with ten workers
|α and β:
||Labor productive elasticity and capital productive elasticity, respectively
To obtain the proper model, the labor average added value has is considered
and inserted into the model as dependent variable, along with the number of
staff, capital per capita volume and per capita industrial cooperatives compensatory
payments as independent variables. Based on the studies done and present economic
viewpoints, Average Productivity of Labor (AVL) is a function of employment
level (L), per capita capital volume (AK), per capita compensatory payments
(AWP) and other related factors. Per capita capital volume and per capita services
compensation are obtained through Eq. 3, 4
and 5, respectively:
To estimate the model based on the ordinary least squares method, nonlinear
relation of Cobb-Douglas Production function is converted into linear relation
and used as the following logarithmic form (Eq. 6):
Finally, the parameters of the research model are estimated by using the ordinary
least squares method and panel data method as follows (Eq. 7):
The main objective of this study is to consider the relationship between compensatory
payments and labor productivity in industrial cooperatives with ten or more
staff during the years 2006-2008. Further by separating compensatory payments
into two parts of wage and other payments (such as rewards, donations, etc.)
well consider if the impact of the payable wage on labor productivity
in the cooperatives sector of the country is equal with the impact of other
payments on productivity. The source of data related to the study have been
collected from Irans Statistics Center (2009) publications
and Cooperative Ministry for the years 2006-2008 the statistical community is
composed of industrial cooperatives (ten workers and more) belonging to 30 provinces
of the country.
The statistics shows that to the end of the year 2008, a total number of 606
industrial cooperative workshops with ten workers and more have been operating
in the country (Table 1). Distribution of these workshops
in major activities was as follows: 36% in drink and foodstuffs industries
sector, 18.5% in industries of non-metal and mineral productions
sector, 7.9% in rubber and plastic productions industries and other
workshops were occupied with other industrial activities (Table
2). Also, the most centralization of industrial cooperative workshops was
in the provinces Mazandaran, Gillan and Khorasan Razavi with around 8.7, 7.9
and 7.1%, respectively and the least centralization was in the provinces Elam,
Kerman and Sistan and Balochestan with around 0.3, 0.7 and 0.8%, respectively
(Cooperative Ministry, 2011).
To investigate the relationship between compensatory payments and labor productivity
in industrial cooperatives, considering the first model, the effect of staff
services per capita compensation (AWP) including wage and other payments on
labor productivity was estimated.
Further, the second model was studied by distinguishing services compensation
variable into two parts of wage and other payments to investigate comparatively
the impact of per capita wage (AW) and other payments per capita (AP) on labor
productivity. The aim of estimating the second model is to answer the question
that which one of wage and other payments variables such as reward, etc., can
have more impact on labor productivity?
To study the impact of two variables of wage and other payments on labor productivity,
the per capita form of these variables has been used, the calculation that is
the same as functions 3 and 4; per capita wage (AW) and other payments per capita
(AP) have been shown. To investigate the existence of homogeneity or heterogeneity
in sections and to specify the matter that in the case of homogeneity, the aggregated
ordinary least squares method and in the case of heterogeneity, the panel data
method are used, the zero hypothesis based on sections homogeneity was tested
by Limer test (F).
In the test statistic (F), the amount of RRSS indicates restrict residual sum
of squares, the amount of URSS is un-restrict residual sum squares, K shows
the number of descriptive variables, N is the number of sections and NT is the
number of total observations. As it is shown in Table 3 ,the
amount of obtained statistic F for both models implies the zero hypothesis rejection.
So that is concluded that using panel data method is more desirable. In order
to identify whether the models should be estimated considering constant or random
effects, the Hausman test was used (Hausman, 1978).
With reference to the calculated statistic (chi-square statistic) and comparing
it with critical amounts, it was apparent that the zero hypotheses based on
more efficiency of random effects couldnt be rejected (Table
3). The result is that both models are estimated based on random effects.
|| Model estimation output for industrial cooperatives (2006-2008)
|L: Employment, AK: Per capita capital, AW: Per capita wage,
AP: Other payments per capita, AWP: Per capita compensatory payments
Moreover, since the number of sections including 30 provinces is more than
the time series and there is the possibility of heterogeneous variance, the
heteroscedasticity variance test was done based on the likelihood ratio test.
The test results with a 5% meaningful level shown in Table 3
indicates variance heterogeneous for both models. So, to remove the problem
and estimate more properly, the Feasible Generalized Least Squares (FGLS) method
Many studies regarding the factors affecting labor productivity and economic
firms added value such as the impact of services compensation, payment
and salary have been done. Samadi (2004) investigated
the relationship between wage and labor productivity in Irans large industrial
workshops, using convergence methodology and error correction model during 1979-2002
and found that there is a one-sided causal relationship from wage to productivity,
but there is no causality relationship from productivity and unemployment to
wage. He concluded that Irans large industrial workshops can affect their
own firm added value by raising the workers wage. In another study regarding
the effects of managers power on capital structure of Italian agricultural
cooperatives, Russo et al. (2000) come to the
conclusion that member participation is one of the effective factors in cooperatives
performance. Taheri (2003) also investigated the relationship
between wage levels and labor productivity in Irans industries sector
for the years 1994-2000; by measuring the labors generalized mean productivity
in industry activities and providing theoretical. The results for the countrys
industrial workshops in the form of nine activity groups showed that in the
course of study there was a direct relationship between wage levels and labor
productivity and that the structure of this relationship has been the same for
different activities of industry. In order to show the effective factors on
cooperatives success in Iran, Amini and Ramezani (2008)
and Nekooee-Naeeni (2006) concluded in different studies
that, the extent of members participation and their motivation incentives
such as compensatory payments are effective factors in cooperatives success.
Further, Wakeford (2004) investigated the relationship
between wage, employment and productivity of labor in Southern Africas
industry sector in the years 1983-2002 and concluded that there is a long-term
balance relationship between actual wage and labor productivity; so that 1%
increases in actual wage level causes 58% increase in industry sector productivity.
In order to answer the question that if the wages can cause productivity increase,
Levin (1992) used production function to describe the
differences in wages in South America and tested the wage efficiency theory.
He concluded that there is a meaningful and positive relationship between productivity
and wage. So that, those commercial units increasing workers relative
wage with the same human capital are able to cover the expenses arising from
increase in wages through obtaining the interests arising from productivity.
In another attempt, Gordon (1987) used productivity
equations to measure the relationship between labor productivity growth and
actual wage in Japan, America and Europe and showed that increase in actual
wage causes labor productivity increase and added value and finally welfare
level increase and economic growth in the society. The main focus of present
study also was on finding out the relationship between compensatory payments
(Direct and Indirect payments) and labor productivity in industrial cooperatives
of Iran during the years 2006-2008.
The concluding part of the above-mentioned studies and the present work confirm
that in economic firms there is a bilateral relationship between two variables
of labor productivity and staff services compensation. In such a way that wage
increase should rise according to productivity level and also productivity should
rise in proportion to wage increase. In this situation it is expected that any
wage increase causes labor condition improvement in economic firms so this issue
should be explained to the staff that they must enhance their productivity in
proportion to the increased wage so that the increase made in wages be economical
in term of management for the employer. Also, to prevent staff welfare reduction
its necessary that any increase in wage levels be according to the present
inflationary conditions. Since the amount of the wage being received has a great
impact on families consumption basket and providing their minimum needs,
so if wages are not increased rationally in line with goods and services price
level, this matter will lead to reduction of families welfare level, reduction
of their motivation for working in environment and finally reduction of labor
productivity in society.
Cooperative movement was incorporated in Irans
Constitution; Article 44 and explicitly shows the importance of cooperative
sector of national economy when it reads that public sector operation should
be limited to a certain extent and that private sector is complementary to the
two other public and cooperative sectors. The provisions specified for legal
support of triple sectors ownership
suggest the strength of cooperative sector and an emphasis on its development.
The present study confirms the idea for the case of industrial cooperatives
in Iran, that any increase in wage can cause labor productivity increase in
production; in such a way that 1% increases in the amount of compensatory payments
in industrial cooperatives raises the average added value of this sector by
0.22%. Research findings also imply the effect of both wage and other payments
variables on labor productivity separately. Of course, the effect of wage increase
on labor productivity is more than that of other payments increase such as rewards,
donations, etc., so that, 1% increases in wage payment raises the average added
value of industrial cooperatives by 0.184% while, 1% increases in other payments
raises the average added value only by 0.124% in this sector.
Despite the emphasis made by Irans
Constitution in the context of cooperative movement, the cooperative sector
is still an integrated part of poor economic system running in the country.
In order to promote the basic principles of cooperative movement and formulate
relevant legislation to meet cooperative requirements, that is necessary to
facilitate government legislative policies support with particular reference
to inspecting laborer's wage payment regulatory laws. It is also recommended
that the labor productivity of industrial cooperatives is substantially influenced
by staff compensatory payments in this sector. Moreover, research findings show
that since wage increase has more effect on productivity level than increase
in other payments, so it is recommended that the efficient type of wage specification
must be well considered.
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