Wage Differentials

Wage Differentials

  • Wage differentials are differences in wages such as that between brain surgeons and waiters
    • They occur between occupations, industries, firms, regions, and within these categories
  • Wage differentials can be explain by supply and demand, bargaining power, the impact of government policy and public opinion
  • Over time, wage differentials between groups can change
    • g. the gap in wages between premier league players and division 2 players has widened over the last 2 decades, as the premiership’s revenue has increased greatly.

Wage Differentials Between Particular Groups

Skilled and Unskilled Workers:

  • Skilled workers are paid more than unskilled workers, as demand for skilled workers is higher, and their supply is less
  • MRP for skilled workers is high, as the skills possessed will often lead to higher output per worker
  • It is more difficult to substituted skilled labour with capital and unemployed workers than it is for unskilled
  • Skilled workers have a high level of human capital
    • Human capital is the skills, knowledge and experience that workers possess

Male and Female Workers:

  • Men are paid more than women, despite equal pay legislation
  • This could be due to women working more part-time than men
  • When hourly pay-rates are examined, men still earn more; but this gap is narrowing
  • On average, the MRP of women is lower than that of men
    • One reason was because in the past, men were better educated than women. However, that is not the case anymore, with more women than men studying at university.
    • This could be due to the fact that women are disproportionately concentrated in low-paid occupations, like car work, or cleaning
  • Also, some women lose out on promotions, due to leaving the labour market for things like raising children
  • Discrimination does still occur to some extent, with some employers undervaluing the services of female workers.

Part-time and Full-time Workers:

  • Part-time workers on average receive lower hourly earnings than full-time
    • One reason for this could be due to the supply of people wanting to work part-time is high relative to demand, as part-time work is convenient for students, and people bringing up children.
  • The productivity of part-time workers tends to be lower, as they’re less likely to receive training
  • A smaller proportion of part-time workers belong to trade unions, and a higher proportion are women.

Ethnic Minorities:

  • People from ethnic minorities tend to be lower paid than white workers
  • This could be due to the fact that they work in unskilled professions, such as catering or cleaning
  • Also, discrimination takes a part, resulting in a contraction of demand
  • (If the examiners ask you a question about this they’re racist)