Wage Differential
Wage Differential
Wage Differential
Definition:
The word differential means relating to, or showing a difference, or making use of a
specific difference or distinction. Wage differential is an element of location selection
that is a wage scale reflecting the average schedule of workers' pay in an area that takes
into account the performance of related tasks or services.
First:
The differentials that can be attributed to imperfections in the employment markets, such
as the limited knowledge of workers in regard to alternative job opportunities available
elsewhere; obstacles to geographical, occupational or inter-firm mobility of workers; or
time lags in the adjustment of resource distribution and changes in the scope and structure
of economic activities. Examples of such wage differentials are inter-industry, inter-firm,
and geographical or inter-area wage differentials.
Second:
The wage differentials which originate in social values and prejudices and which are
deeper and more persistent than economic factors. Wage differentials by sex, age, status
or ethnic origin belong to this category.
Third:
Occupational wage differentials, which would exist even if employment markets were
perfect and social prejudices, were absent.
These indicate that since different occupations require different qualifications, different
wages of skill and carry different degrees of responsibility, wages are usually fixed on the
basis of the differences in occupations and various degrees of skills.
Inter-firm differentials reflect the relative wage levels of workers in different plants in the
same area and occupation. The main causes of inter firm wag~ differentials are:
Such differentials arise when workers in the same industry and the same occupational
group, but living in different geographical areas, are paid different wages.
Regional wage differentials may be conceived in two senses. In the first sense, they are
merely a part of inter-industry differentials in a particular region.
The industry mix varies from one area to another, and for this reason alone, the general
average of wages would be expected to vary. In the second sense, they may represent real
geographical differentials, resulting in the payment of different rates for the same type of
work. In both cases, regional differentials affect the supply of manpower for various
plants in different regions.
Such differentials are the result of living and working conditions, such as unsatisfactory
or irksome climate, isolation, sub-standard housing, disparities in the cost of living and
the availability of manpower. In some cases, regional differentials are also used to
encourage planned mobility of labour.
These differentials arise when workers in the same occupation and the same area but in
different industries are paid different wages. Inter-industry differentials reflect skill
differentials. 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.
Other factors influencing inter-industry differentials are the extent of unionization, the
structure of product markets, the ability to pay, labour-capital ratio, and the stage of
development of an industry.
These arise because of differences in the personal characteristics (age or sex) of workers
who work in the same plant and the same occupation. "Equal pay for equal work" has
been recommended by the I.L.O. Convention (No. 100), as also by Industrial Courts,
Labour Tribunals, the Minimum Wages Committee and the Fair Wage Committee.
But in practice this principle has not been fully implemented because in occupations
which involve strenuous muscular work, women workers, if employed, are paid less than
men workers. Lack of organization among women employees, less mobility among them,
their lower subsistence and their weak constitution are other reasons which bring them
lower wages than their male counterparts receive.