Wage differentials reflect difference in the physical and mental abilities of workers, differences in productivity, in the efficiency of management and in consumer preferences, and act as signposts for labour mobility. The Size of the organization determines its paying capacity, span of control, budget on human resources and competitive strength to determine the pay packages. An efficient worker gives better output. To allow the companies to build distinctive competences, v. To encourage less skilled employees to develop their skills and other human resources in order to get higher pay, vi. The presence of noncompeting groups in society makes labour more immobile. These interindustry wage differentials apply across occupations (if one occupation in an industry is high paid, then all other occupations tend to be) and over time. Y attracts people like B, who have a relatively strong preference for money wages and a relatively weak preference for safety. Wage differentials has been classified into three categories: • The differential that can be attributed to imperfections in the employment market, such as the limited knowledge of worker in regard to alternatives job opportunities available elsewhere; obstacles to geographical, occupational or inter-firm mobility of worker; or time lags in the adjustment of resource distribution and change in scope and … Registered Data Controller No: Z1821391. *You can also browse our support articles here >. But in practice this principle has not been fully implemented because in occupations which involve strenuous muscular work, women workers, if employed, are paid less than men workers. We study the impact of minimum wage uprating on the wage distribution and wage differentials between 2009 and 2018, focusing especially on the introduction of the National Living Wage (NLW) in April 2016. Factors 7. If society decides that resources need to be allocated to production that involves undesirable work, then compensating wage differentials are necessary. Wage differential is an element of location selection that is a wage scale reflecting the average schedule of workers’ pay in an area that takes into account the performance of related tasks or services. 10 per hour to be competitive in the labour market. Scarcity differentials (which may be due to specific skills and mental abilities) produce wage differentials; and as long as the former as inevitable, the latter, too, would be so. (b) The existence of non-competing groups due to difficulties in the way of the mobility of labour from low paid to high paid employments. It can be shown in the Fig.5. Mark Cassidy & Eric Strobl & Robert Thornton, 2002. Employers differ in the ease (cost) with which they can eliminate hazards. Many studies are in place to explain the causes of variations in wages and earnings among gender, race, and union membership, etc. Such differentiations are referred to as experience based differentiations or extent of supervision based differentiations. A doctor may start with a lower salary than a lecturer but the former can make up the deficiency by private practice. Inter-personal, inter-unit, inter occupational wage differentials are more predominant in unorganised sector of Indian economy. 2 | P a g e Muhammad Waqas ABSTRACT This piece of research uses three waves 2007 – 2010 of the UK Citizenship Survey and finds that clear wage differentials exist … By providing an. The word differential means relating to, or showing a difference, or making use of a specific difference or distinction. Wage differentials have a great economic and social significance; they are directly related to the allocation of the economic resources of a country, including manpower growth of the national income, and the pace of economic development. It enables full employment of the resources of the economy to be attained. Difference in productivity of workers. We will get different terms as occupational wage differentials, inter-industry, inter-firm, inter-area or geographical differentials and personal differentials because wages differ in different employments or occupations, different industries and localities, and even between the persons in the same employment or grade, etc. Wage differentials arise because of the following factors: (a) Differences in the efficiency of the labour, which may be due to inborn quality, education, and conditions under which work may be done. Workers are aware of the job characteristics. Some may require manual work, some may require mixed efforts of machine and hand and some may require automation only to be supervised or monitored. Wage differential Wage differential is a term used in labour economics to analyze the relation between the wage rate and the unpleasantness, risk, or … As we are interested in analysing the magnitude of wage differentials, expressed as log gross monthly wages, across individuals, our strategy rests upon the estimation of a Mincer-type wage equation (see Mincer, 1974). Presently, in India, various occupations based on the salary structure in descending order may be arranged as follows: Similarly, differences occur in terms of various specialities-management, information technology, Accounting, engineering and others in that order. By providing an important incentive for labour mobility, they bring about a reallocation of the labour force under changing circumstances. In many situations, arbitration or judicial pronouncements have favored a higher quantum for the lowest category of workers. There is a need to understand the reasons for these differences as in many cases there is a constant adjustment taking place in order to maintain the existing disparity, for instance, between the skilled and unskilled or semiskilled workers; between the officers and the supervisory or clerical staff and so on. Wage Differentials - Advantages and Disadvantages with Evaluation. “Equal pay for equal work” has been recommended by the I.L.O. risk of injury on the job. Salary differentials on the basis of occupations, units and areas (when real wages are taken into account) can be justified on the basis of equal pay for equal work among workers. Age, Wage and Productivity Jan C. van Ours CentER, Tilburg University, University of Melbourne, CEPR, CESifo and IZA Lenny Stoeldraijer Tilburg University Discussion Paper No. Adam Smith in 1776 argued that compensating wage differentials arise to compensate workers for the nonwage characteristics of jobs. 3. This has been the common experience in India. Under competitive conditions, wages are determined by conditions of demand (which reflect the productivity of workers) and conditions of supply (which reflect the attractiveness of jobs). between jobs and provided for relative weightages which could lead to standardization and eradication of distinctions for the same type of jobs. 5. The extent of efforts required to perform any task or work also vary, which necessitates W/S differentiation. Besides, the chances of receiving training for better-paid occupations depend on the resources of the family. Firms are aware that they must compensate for human capital development to attract the necessary skilled labou… Study for free with our range of university lectures! Forces on the employer side of the market tend to cause low risk to be associated with low wages and high risk to be associated with high wages, holding other things constant. Wage differentials under market economies should exist in order to perform the following functions: i. Wages differ in different employments or occupations, industries and localities, and also between persons in the same employment or grade. Info: 2424 words (10 pages) Essay ii. Compensating wage differentials will only arise if some people do not choose the highest-paying job offered, preferring instead a lower-paying but more pleasant job. Other factors, which reflect wage differences, could be (a) Technology advancement (b) Managerial efficiencies (c) financial capacity of the firm and (d) Age and size of the company. (b) The existence of non-competing groups due to difficulties in the way of the mobility of labour from low paid to high paid employments. As a result, a child born to a sweeper will most likely be a sweeper just as a black smith’s son will be a black smith. Some combinations of wage rates and risk levels that would yield the same level of utility can be represented by indifference curve. They are the pay differences for the same kind of input. Salary Differentials and Economy Functions: Salary differentials perform important economic, functions like labour productivity, attracting the people to different jobs. Some are more efficient and some are less efficient. These trend-setters set pattern not only in relation to recruitment of better personnel but in terms of other human resource management practices too. After the wage rise of firm Y, if both firms could obtain the quantity and quality of works they wanted, the wage differential would be an equilibrium differential, in the sense that there will be no forces causing the differential to change.
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