importance of wage differentials
This has been the common experience in India. 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. Employeeâ€™s character can be defined as job matching personality i.e., the type of occupation, level of skill and knowledge, working attitude and extent to which he/she can do the work independently. In this case, most workers would undoubtedly choose employer X. But if on the other hand, it is customary to have the plant as the unit of collective bargaining and different plants organized by different unions’ inter-plant differentials in an industry tend to get entrenched and even magnified depending upon the paying capacity of the plant and bargaining power of the union. While agitating against many of the differentials trade unions patiently cling to the maintenance of many others. Many studies are in place to explain the causes of variations in wages and earnings among gender, race, and union membership, etc. 1. Different organisations falling in the same industry group and at the same location offer different wages and salaries to individuals having similar background. 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. Wage differential refers to differences in wage rates due to the location of company, hours of work, working conditions, type of product manufactured, or other factors. Wage Differentials - Advantages and Disadvantages with Evaluation. They become trend-setters rather than play the role of followers. Share Your Word File On the other hand, Employer Y is offering Rs. At the macro level, these differentials determine the allocation of human resources and non-human resources. Some combinations of wage rates and risk levels that would yield the same level of utility can be represented by indifference curve. The industries paying higher wages have mostly been industries with a large number of skilled workers, while those paying less have been industries with a large proportion of unskilled and semi-skilled workers. There are a variety of contributory factors. Compensating wage differentials - higher pay can often be some reward for risk-taking in certain jobs, working in poor conditions and having to work unsocial hours. Wages will vary according to the probability of success in the occupation. 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. Difference in productivity of workers. Coupled with this, shortage of supply of such personnel also induces the payment of higher pay. A certain job requiring a certain skill is paid more or less than another job requiring a different skill either in the same or some other industry. 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. 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. Have you ever stopped to wonder what causes the rates of wages to differ in the workforce? Thus, wage differentials provide an incentive for better allocation of human force, labour mobility among different regions and the like. Some others are not efficient at all. To pay on the basis of employees’ talents and skills, iii. 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. But even in organised sector and public sector units, wage differentials are quite common. Adam Smith in 1776 argued that compensating wage differentials arise to compensate workers for the nonwage characteristics of jobs. Here, the concavity of Iso-profit curves is a representation of our assumption that there are diminishing marginal returns to safety expenditures. When a particular industry or occupation offers higher wages and salaries, the economic resources are geared to develop such personnel. Many factors have been identified as responsible for this state of earning differential affairs apart from the obvious difference in capability between the males and females. 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