Impact Of Wages On The Financial Performance Of Different Industries In Australia

Research objective

The wages and the financial performance of the firms have been one of the most interesting topic in the recent time especially after the global financial crisis of 2007-08. Some of the policymakers have argued that the wages of the employees in the higher positions increased at the much faster rate as compared to the employees in the middle and the lower position. This led to higher wage gap between the employees in the same firm, which also leads higher inequality. Also there has been some arguments that the higher pay to the higher positions employees were not directly linked to the performance of the employees(Wannakrairoj 2013; Rankin & Roberts 2010). Apart from these, the wage and the financial performance has been discussed in many research for a long time. The relationship between the wage and the financial performance is two way relationship. This is because, the firms which have higher profits are expected to pay higher wages to its employees as they can afford higher wages. On the other hand it has been argues that employees with higher wages are expected to perform well which will help to improve the financial performance of the firm. So, the impact of the wages on the financial performance cannot be clearly defined. If the firms increase the wages which do not lead to increase in the productivity of the workers, this will only increase the cost for the firm which will negatively impact the financial performance of the firms. On the other hand if the increase in the wages leads to the increase in the productivity of the workers, and if the increase in productivity outnumbered the increase in cost (due to higher wage)(David T. Cadden 2012).

The main aim of the current search is to examine the impact of the wages on the financial performance of different industries in Australia.  

This section of the research is devoted to the literature review. Literature review allow the research to review the existing researches conducted on the similar area and get an overall view about the research area
The relationship between the wages and the financial have been analyzed by my previous scholars. Some of the scholars have argued that the wages and financial performance are positively related(Lwamba, Bwisa & Sakwa 2013; Shahwan 2015; Raza 2013). This is because with higher wages the employees are more motivated towards the work and they perform better which have positive impact on the overall performance of the firm. However on the other hand there are some papers which argues that the increase in wages increases the cost for the firm and the increase in the productivity is not immediate(DR.M.DHANABHAKYAM & M.KAVITHA 2012; Wabwile et al. 2014; Bedi n.d.). So, even if there is positive impact it will be realized after some time gap and if the firms are able to retain the employees for such time period. Furthermore , some reaches argues that the increase of wages of only certain section of the employees may have negative impact on other employees which may have negative impact on the financial performance of the firms.

Literature review

A research by (M.O & Oluwaseun 2014) examined the impact of increase in the compensation on the productivity of the workers taking into consideration the Nigerian food industry. The primary data was collected among 125 workers and analyzed. Authors used the chi square test to examine if there is significant change in the productivity and the performance. Findings from the paper show that increase in the wage has positive and significant impact on the performance of the workers, which in term leads to increase in the performance of the firms. Another research by (Grund & Westergaard-Nielsen 2008) investigated the dispersion of employees’ Wage increases and the performance of the firms. Authors used the data from 1992-1997 from Denmark and the findings show that growth of employees have negative impact on the performance of the firm. 

Research Gap

Most of the research have focused on establishing the relationship between the wages and financial performance for particular firms. Similar study for the industry have been very less. So the current research is expected to some gap in the literature.

Hypothesis:

H0: There is no positive and significant relationship between the wages and the EBIT.

H1: There is positive and significant relationship between the wages and the EBIT.  

Research methodology is one of the most important part of every research. This section explains all the methods and techniques used in the research paper along with the data used for the research with the sources of the data. For the current research, the methodology has been explained in this section and the entire section has been divided into three section. In the first section the research methods has been explained followed by the data and the sources of the data. Finally in the third section the data analysis techniques used in the research has been explained.

The existing research methods can be broadly divided into three groups. The first is the qualitative research which is used when the researcher want to have in-depth analysis of the given research topic.  It is the exploratory research. In other words using this method one can explore the given area and gain useful insights to test the hypothesis. However the results are not in numbers neither the data is in numerical form. Most of the data used in the qualitative research are either in the form of textual data, audio, video and images. As compared to the quantitative research, the sample size used in qualitative research is small. Some of the data collection techniques for the qualitative research includes focus group study and conducting the personal interview. The open ended questionnaire is used to collect the data and in most of the cases the non-random sampling is used to select the sample(Gray 2014; Blumberg, Cooper & Schindler 2008; Mangal & Mangal 2013; Trochim 2006; Jonker, J. and Pennink 2010).

The second type of the research method used is the quantitative research which allows the researcher to finds hidden insights and information from the given data set. The data for the quantitative research is in numerical form. This data is then processed using different statistical techniques to get the meaningful results. The major techniques to collect the primary data for the quantitative research is to conduct the primary survey using the close ended questionnaire.
The third research method is the mixed research method where both the qualitative and the quantitative research method is used for the analysis. The mixed method provides much more useful information as compared to other research methods. However the mixed method is very costly and time consuming as both the quantitative and qualitative analysis has to be conducted(Kuada 2012; Neuman 2005; Saunders, Lewis & Thornhill 2007).

Research Gap

For the current research the quantitative research method has been used as the data collected for the research are in numerical form and the hypothesis are also proposed in the similar way which can be tested only from the numerical data analysis.

Data is a vital part of every research as all the results and the conclusion are based on the data. If the proper and appropriate data set is not used for the analysis, then the results do not have any significance. There are majorly two types of data sources which are used for the analysis. The first is the primary data. As the name suggests this type of data is collected by the researcher as per the requirement of the research. Primary data is collected either by conducting the primary survey or through the personal interview.

The second type of data source is the secondary data. This type of data is already collected and the researcher uses the same data his/her research. The secondary data is less costly as compared to the primary data. However in some cases the appropriate secondary data is not available which create problem for the researcher.

For the current research the secondary data has been used and the data has been collected from the ABS website. The data consists of two variables namely the wages/salaries and the EBIT. The EBIT has been taken as the proxy for the financial performance. The data for the time period 2007 – 2017 has been used for 6 different industries in Australia. 

Data analysis techniques

For the current research following techniques has been used:

Descriptive statistics

The descriptive statistics included the measures of the central tendencies and also the results for the skewness and kurtosis. The descriptive statistics will help the researcher to analyze the trend of the variables and also to know whether the appropriate data set has been used for the analysis or not.

For the inferential analysis three different types of techniques have been used. The first is the ANOVA test which is used to test the difference between the different groups in the data set. Secondly the correlation analysis has been used to examine the relationship between the dependent and the independent variable. Finally the regression analysis has been conducted to investigate the impact of the independent variable on the dependent variable. 

All the findings from the data analysis has been shows in the current section. The first section is used for the descriptive statistics whereas in the second section the findings from the inferential analysis.

As the findings from descriptive analysis show that the mean wage for the selected six industries is $ 29079 mn and the standard deviation is 19156. The value of the standard deviation suggest that the wage vary from one industry to another. Similarly the minimum and the maximum wage for the selected industries is 5758 and 61525. So, there are some industries where the wages are very high and in some industries the wages are very low. The value of skewness is positive which indicates that the distribution is positively skewed.

Hypothesis

Furthermore the results for the EBIT shows that the mean EBIT is $33652 mn with the standard deviation of 19568. As expected there is high variation in the EBIT also. One of the reason for such variation can be because of difference in the size of the industry. The minimum EBIT is 8384 whereas the maximum is 90738.  

The histogram of wages is shown in the above graph and the results shows that the variable is normally distributed so further analysis can be conducted with this variable. 

Also the EBIT shows normal distribution as most of the values lies around the mean value. So both the variables taken into consideration shows normal distribution. If the variables do not show normal distribution then the t-test cannot be conducted. 

In this section the findings and the discussion from the inferential analysis has been shown.

ANOVA test

The ANOVA test is conducted to test whether there is statistically significant difference in wages in the different industries included in the study. As the table below shows, the F value for the same is 176.213 and the significance value is 0.000.

Since the F value is statistically significant at 95 % confidence interval, it can be said that the wages in one industry is significantly different from another industry. This was shown in the descriptive results also and the inferential analysis prove it.

To examine the relationship between the dependent and the independent variable the correlation analysis has been performed and the results are shown in the table below. 

The correlation coefficient between wages and the EBIT is 0.169 which indicates that there is positive relationship between the two values. In other words the wages and the EBIT moves in the same direction. However from the correlation analysis, it cannot be concluded whether increase in one variable is due to increase in the other variable or not. Further test is required to establish such relationship. 

Finally the regression analysis is shown in the current section, which is also the last inferential analysis for the current research. 

As the table shows the dependent variable is the EBIT which is the indicator for the financial performance of the industry. The model summary for the regression shows that the value of the R square is only 0.029 which means that the wages are able to explain less than one percent of the variation in the EBIT. There are many other factor which explain the financial performance, so the R squared is less in this case as only one variable is used as the independent variable.

Furthermore the results from the F statistics show that the F value is 1.886 with the significance value of 0.174. Since the 95 % confidence interval is used in this case the F statistics is also not significant. 

Lastly the results from regression coefficient is shown in the above table and the results indicates that wages have positive impact on the EBIT as the coefficient is positive. However the p value for the regression coefficient is more than the critical value of 0.05. So the coefficient is not statistically significant.  However the positive relationship has been established. 

Research Methodology

The standard residuals from the regression are normally distributed, so the assumption of normal distribution has been fulfilled. 

As the results from descriptive statistics shows that there is continuous increase in the wages and EBIT for each industry. However the variation in the wages and EBIT is very high among the industries. In other words wage rate in one industry is very high as compared to the wage in another industry. Furthermore the results from the ANOVA also confirms the significant variation between different industries included in the analysis(Densten, Gray & Sarros 2003; Raynard & Forstater 2002). The findings from the correlation analysis shows positive association between the wages and the EBIT and the coefficient from the regression analysis proves that the wages have positive impact on the EBIT. Some of the previous research on the similar areas have also shown the positive association between the two variables. However in some research the negative relationship has been found where the higher wages are paid to high level management irrespective of their performance.

Conclusion

The main aim of the current research is to investigate the relationship between wages and the financial performance. For the analysis purpose the secondary data was collected from the ABS data base for the year 2007 -2017. The collected data was analyze using different statistical techniques such as the descriptive statistics, ANOVA, correlation and the regression analysis. The results from the descriptive shows higher variation in wages and EBIT among the industries which was also confirmed by the ANOVA test. The findings from the correlation as well as the regression shows positive relation between the two variables. In other words increase in the wage rate leads to increase in the EBIT.

One of the major limitation of the current study is that there is no qualitative study which would have provide much more information about the given topic. Also there is no use of the primary data set which can be used to cross verify the findings from the secondary data. In terms of data only 10 years data has been used. Lastly the limitations related to the time and cost are always there.

Based on the results from the analysis following recommendations can be made:

• The positive relation between the wages and the EBIT has been established from the data analysis, so the wages should be increased. However the increases in the wages should be matched with the productivity of the workers.
• The high variation in the wage rate may be one of the reason for higher inequality. So the regulators should ensure that there is no higher gap between the wage rate in the industries and also the difference in the wage between the higher and the lower level employees should not be very high.   

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