The remuneration package and pareto inefficiency in the labour market

This paper argues that a simple wage payment system relating wages to hours of work supplied cannot bring about Pareto efficiency in the labour market and that in its search for efficiency, the labour market has evolved an alternative pricing system that differs from those generally found in other markets. Specifically, it is demonstrated that whereas Pareto efficiency will in general be absent in the labour market when a single price system prevails, a labour reward package consisting both of a fixed payment element unrelated to hours of work supplied and a work-input related wage element is likely to bring about Pareto efficiency.