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)


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