Wage Differentials

F583 A2 Revision

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  • Wage Differentials, Why are people paid differently?
    • Each worker is unique, they have:
      • Different skill sets
        • experience
        • education
        • training
        • resilience
      • Different levels of MRP (Marginal regional product)
      • Different individual supply factors (availability etc)
      • Workers are subject to discrimination
    • Market forces will tend to equalise in the long run
      • Pay is not all the story, net benefits and advantages not just cash, e.g personal satisfaction
        • pecuniary benefits:cash
        • Quasi-pecuniary benefits (e.g pension, car, lunches etc)-things provided in kind which have monetary value
        • Non-pecuniary benefits: benefits that cannot easily be given a price ( Nature of job, job security, working enviroment etc)
        • If pecuniary benefits are low, non-pecuniary benefits often act as a COMPENSATING DIFFERENTIAN
    • Labour is immobile in the short-run
      • Occupational immobility
      • Geographical immobility
    • Lack of competition on the supply side
      • monopolistic supply of labour thanks to Trade Unions
    • Lack of competition on the demand side due to monopsonistic buyers of labour


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