Occupational Wage DifferentialsCompensation Management

Prepared By

Kindly restrict the use of slides for personal purpose. Please seek permission to reproduce the same in public forms and presentations.

Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – manu_melwinjoy@yahoo.com

Wage differentials

• The wage paid to workers

varies greatly. These wage

differentials are mostly the

result of differences in

worker ability and the

workers' effort in performing

the job.

Wage differentials• There are also wage

differentials across occupations, because of differences in the demand and supply of laborers for particular job or occupation. These differences arise primarily because of differences in the amount of education or training required and in the desirability of the job itself.

Occupational Wage Differentials• Obviously, certain

occupations pay more than others. Surgeons make more than teachers, who make more than retail salespeople. Most of these wage differentials are the result of educational and training requirements, what is often referred to as human capital.

Occupational Wage Differentials• Surgeons require more

than a decade of education and training after high school before they can earn a living as surgeons, while retail salespeople can get a job right of the high school, or even while they are still in school.

Occupational Wage Differentials• Education and training limit the

supply of labor in that they take a certain amount of time to complete and require a certain level of skill. In many cases, people who attend college or training school do not have the time to work a full-time job. Therefore, they also incur an opportunity cost which is equal to the amount of money that they could have earned had it not been for the educational or training requirement.

Occupational Wage Differentials• Another primary factor that

determines wages is the demand for the worker, which is a derived demand for the product or service that the worker provides. If the worker provides a product or service that is highly desirable, then a higher wage will prevail for a given supply of workers who could do that job.

Occupational Wage Differentials• Sometimes, ability makes a

very large difference in wage potential that far outweighs the differences in ability. The winning horse earns a lot more than the one that comes in 2nd even though it is only a little faster. There are only so many jobs for professional athletes, so only the very best are going to be chosen for those high-paying jobs.

Occupational Wage Differentials• Likewise, only the best

musicians or those producing the most desirable music will become wealthy. People only have so much time and money for entertainment, so they tend to select entertainment performed by the best people, especially entertainment package for mass consumption.