Job evaluation

Because the external labor market cannot determine a unique wage for jobs in the labor market firms have to use some non-market device to establish an explicit wage structure. One technique that is frequently used is job evaluation. The primary objective of a job evaluation system is to achieve an internal wage structure that promotes equity and rewards efficiency while at the same time being consistent with competitive conditions in the external labor market. Most job evaluation systems have the same basic methodology. The first step is to write a detailed description of each job. The second step is to rate or evaluate each job according to one or more ‘compensable factors’ such as skill and education and so on. The third step is to add these ratings together in some way to create a total ‘job worth score.’

Based on the job worth score each job can then be ranked in the job ladder. In devising a wage structure in the future the rising prices should be a factor in the job evaluation.