Factors responsible for wage differential between occupation, Managerial Economics


The major cause is demand and supply for the particular labour concerned, but other causes could be:

i.     Differences in the cost of training:  Some occupations require large investments in training, while others require a much smaller expenditure for training.  A physicist must spend eight years on undergraduate and graduate training.  A surgeon may require ten or more years of training.  During this period, income is foregone and heavy educational costs are incurred.

ii.    Differences in the cost of performing the job:  For example dentists, psychologists and doctors in general require expensive equipment and incur high expenditure for running their practice.  In order for net compensation to be equalized, such 'workers' must be paid more than others.

iii.   Differences in the degree of difficulty or unpleasantness of the wok:  For example, miners work under unpleasant conditions relative to farmers.

iv.    Differences in the risk of the occupation:  For example, a racing driver or an airplane pilot run more risks than a college teacher.

v.     Differences in the number of hours required for an "adequate" practice:  For example, doctors are required to put longer hours in practicing their professional than post office employees.

vi.    Differences in the stability of employment:  Construction work and athletic or football coaching are subject to frequent lay-offs and hence have little job security, whereas tenure University teachers have a high job security.

vii.   Differences in the length of employment:  For example boxers and football players have a short working-life.

viii.  Differences in the prestige of various jobs:  For example a white-collar worker has a more prestigious position in Society than a truck driver.

ix     Differences in sex:  In most cases occupations which are predominantly womens' occupation tend to pay less than occupations which are predominantly mens' occupations.

x.    Effectiveness of Trade Unions:  If trade unions in one industry or firm are more effective in their wage negotiations with employers than those in another industry or firm, the workers in the industry or firm are likely to earn higher wages than those in the second.

Posted Date: 11/30/2012 2:27:58 AM | Location : United States

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