WAGE

DIFFERENTIALS

Wage differential is the

difference in wages arising
between individuals,
occupations, industries, firms
& regions

Wage differential' is a term used in

labour economics to analyze the
relation between the wage rate and
the unpleasantness, risk, or other
undesirable attributes of a particular
job.

A compensating differential, which is

also called a compensating wage
differential or an equalizing difference,
is defined as the additional amount of
income that a given worker must be
offered in order to motivate them to
accept a given undesirable job, relative
to other jobs that worker could
perform.

compensating differential for an

especially desirable job, or one that
provides special benefits, but in this
case the differential would be
negative: that is, a given worker
would be willing to accept a lower
wage for an especially desirable job,
relative to other jobs.

Factors
Ignorance on the part of

employers and the employees as

per the prevailing wage rates
Due to different systems of
payments
Due to payment of overtimes,
vacations, statutory holidays
Relative bargaining powers of an
employers and the employees

P rinciples
Commensurate with nature job
Equal pay for equal work
Incentives for improving skills &

efficiency
Wages to attract workers

P urpose
Degree of skill required
The strain of work
Experience involved
Extent of training required
Levels of responsibilities
Mental & physical exertion
Fatigue involved

Types
Occupational Wage Differentials
Skill Differentials
Inter firm Differentials
Inter industry Wage

Differentials
Regional Wage Differentials
Sector Differentials
Gender Differentials

O ccupational W age
D if e
frential
Occupational differential is

based on the different

qualifications, skills & carry
different level of responsibilities
Wages are generally fixed on the
difference of occupations &
various degrees of skills
Occupation between white collar
& blue collar employees

Skill D if e
frentials
It is based on the degree of

difference in skilled possessed

by the employees.

Inter f r
im D if e
frentials
This reflects the relative wage

levels of workers in different

plants in the same area &
occupations

The main causes of inter- firm

wage differentials are:
Difference in the quality of
labour employed by different
firms
Differences in the efficiency of
machinery, management & other
organization-specific factors
such as, technology used,
financial capacity, product cycle,

Inter-industry W age
D if e
frentials
This differentials arise when

workers are in the same

occupation & in the same area,
but in different industries and
are paid different wages.
The industries paying higher
wages have mostly been
industries with a large number
of skilled workers, & those
paying less having semi-skilled &

R egional W age
D if e
frentials
When workers engaged in same

occupations & working in the

same industry but in different
regions get different wages, it is
called regional wage
differentials
This is due to in difference in
living & working condition,
climate, isolation, cost of living
difference in the prosperity of

Pay and earnings levels differ

greatly between the main
regions of the United Kingdom.
There are also wide variations in
average pay levels within
regions - in particular within the
inner cities

Sector D if e
frentials
When workers in the region

employed in different sectors

gets different wages
Low wages fixed up for
agriculture sector

G ender W age D if e
frentials
It is the wage differential among

the male & female employees.

Organizational factors such as,
organization culture,
organization structure,
managements policy.