What Are the Benefits of Using the Equity Theory?

Unlike many theories and ideas in microeconomics, equity theory is fairly simple and almost intuitive. It relies on one objective and one subjective premise. The objective premise is that justice is about equalizing labor inputs with labor rewards. The subjective premise is that workers at all levels evaluate their world through their perceptions. These perceptions center around how they view their work in relation to the rewards they receive from it.


Equity, in the context of microeconomic theory, is both normative and specific. For each aspect of an employee's labor that can be translated into wealth for the firm some kind of equal, but different, reward should be given to the employee. The basic benefit here is fairness. Workers, when they perceive they are treated fairly, work harder, are more loyal and produce better products.


The concept of integrity refers to a state of affairs when all the parts of a given whole work together as a single unit. Economically, this means that labor, management, suppliers and customers are seen as a single economic idea. None is treated better or worse, but their different positions require different kinds of work and different, but commensurable, rewards. The lack of integrity means that there is an inequity. If workers feel themselves slighted in favor of management, they will not work as efficiently for the firm and see themselves as alienated from it rather than an integral part of it.


The central benefit of equity theory is the creation of value and its proportion to the rewards of those who create such value. Marxism, anarchism and agrarianism have all stressed how labor can never be an integral part of the firm because their work is taken from them, and the rewards they get in return are not even close to being commensurate with the value they have created. If workers are to be treated fairly, they must have rewards proportionate to the value they create. The outcome here is a far more efficient and pleasant place to work. Under certain conditions, this can become a competitive advantage.


Happiness is an economic variable. It may even be a quantitative variable if the improvements of labor efficiency and productivity in a happy workplace versus an alienated one can be measured. It is difficult to deny that workers that are happy, loyal and satisfied will be motivated to sacrifice for the firm and work harder under stress than those workers who believe themselves regularly wronged. Alienated workers can harm a firm's solidarity. Happy workers, who feel they are treated fairly, are the opposite, and become a real capital asset, rather than mere employees.