Underinvestment employment relationship

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The underinvestment employment relationship occurs, in a market economy, when an employer is in a position to demand more from their employees in terms of production compared to the amount of money, and other goods, that they are obliged to spend on wages and other employee benefits.

This creates a situation in which the amount of money received from the productive enterprise is — in the short run — higher than the amount spent on wages, thus making it possible for the employer to collect a profit from the employment relationship. In the longer term, however, too much underinvestment can become counterproductive, for the individual entrepreneur as well as the whole of the economy, as it potentially can lead to widespread poverty (See also: social dumping).

The opposite of the underinvestment employment relationship is, quite naturally, the overinvestment employment relationship, in which the amount of money received by the employer from production is lower than the amount spent on wages. In the short term, overinvestment might be considered counterproductive. In the longer term, in some cases, overinvestment can become profitable for the entrepreneur, if long-term investment leads to a better qualified and/or more productive workforce.