Wage Differentials. Definition: differences in wages arising between individuals, occupations, industries, firms and regions

Transcription

1 Wage Differentials Definition: differences in wages arising between individuals, occupations, industries, firms and regions

2 Examiner s Tip Exam questions may ask why contrasting professions such as doctors verses nurses verses doctors or footballers verses teachers are paid so differently You must use economic theory to explain these differentials

3 Causes of Wage Differentials Demand and supply and their elasticities Relative bargaining strength Government Policy Esteem

4 Causes of Wage Differentials Demand and supply and their elasticities Esteem Relative bargaining strength Government Policy

5 Demand and Supply DERG Economic Theory would predict that wages would be high when: Demand is HIGH (relative to demand) and INELASTIC Supply is LOW (relative to supply) and INELASTIC For example: Surgeons and Cleaners Supply for Surgeons is low compared to demand due to lengthy training periods and high qualifications needed to gain access to the training, as a result supply will also be inelastic Thus an increase in wages will not result in an influx of many new surgeons in the short run Demand will also be inelastic due to the essential role that surgeons have and the fact that there are no substitutes Conversely, the supply of cleaners is high and elastic No qualifications are needed and no training The majority of people are capable of doing the job, meaning that an increase in wages will lead to a large increase in supply

6 Wage Rate/MRP ( ) WS The Market for Surgeons and Cleaners DERG WC QS QC Quantity of Labour Employed

7 Esteem DERG Some occupations are held in high public esteem as they are seen as providing an important service and being composed of people who are well qualified and possess particular skills and talents E.g. vets, surgeons, barristers This creates a boost in their perceived MRP and is a form of POSITIVE DISCRIMINATION The boost in the perceived MRP shifts the D curve outwards and inflates wages In contrast, jobs such as cleaners are held in low esteem as they are seen as jobs which anyone could do Positive Discrimination: where a group of workers are treated more favourably than others

8 Relative Bargaining Strength DERG Surgeons working in the UK tend to be members of the British Medical Association (BMA) This is a prominent professional organisation with significant bargaining power If the BMA was to take industrial action there would be major consequences There is little scope for replacing specialist medical workers with other factors In contrast cleaners have low bargaining power few are members of a trade union and would be much easier to replace, either with unemployed workers or with capital equipment

9 Government Policy DERG Government policy can help to explain wage differentials For example the introduction of the NMW will have had a positive impact on the wages of cleaners Similarly as government spending on health care increases, largely due to an aging population, this will have increased the demand (MRP) of surgeons

10 Wage Differentials Between Particular Groups Skilled and unskilled Male and female Part-time and full-time Ethnic origin

11 Skilled and Unskilled Workers Wages are higher for skilled workers compared to unskilled workers because The demand for skilled workers in higher Skilled workers are fewer in supply The MRP (demand) for skilled labour is higher as their MP is higher The supply for skilled labour is more inelastic because it is harder to substitute them with unemployed workers or capital equipment

12 Male and Female Workers Men still receive higher pay than women despite equal pay legislation This is partly due to the fact that more women work part time than men, however even if hourly wage rates are compared men still earn more than women The main reasons are on the demand side: In the past the qualifications of men were greater than women since social convention was that more men went to university Low paid occupations have proportionately more women employed than men A smaller % of women are members of trade unions or professional organisations, giving them less bargaining power Some women miss out on promotion as they leave work to raise children Negative discrimination also exists, with some employers undervaluing the MRP of women Negative Discrimination: where a group of workers are treated less favourably than others

13 Part Time and Full Time Workers Part time workers tend to receive a lower hourly wage than full time workers The supply of people willing to work part time is high compared to the demand for them This is because it is convenient for people raising children or studying Part time workers are also less likely to receive training and thus their MP will be lower Part time workers are most likely to be women Part time workers are less likely to be members of professional organisations or trade unions

14 Ethnic Origin Workers from ethnic minority groups on average receive lower wages than white employees For example Pakistani workers are paid on average less than white workers One reason is that many Pakistanis work in the catering industry which is relatively low paid Also, the qualifications of Pakistanis, especially women, are typically lower than the rest of the population Discrimination is another factor