Wage Differentials

Question 1

Where is the equilibrium wage rate and level of employment?

Answer 1

when supply of labour = demand for labour

Question 2

When are wages high?

Answer 2

• demand for labour is high
• demand for labour is inelastic
• supply of labour is low
• supply of labour is inelastic

Question 3

When are wages low?

Answer 3

• demand for labour is low
• demand for labour is elastic
• supply of labour is high
• supply of labour is elastic

Question 4

Why do men earn more wages than women?

Answer 4

1. child-bearing
- if on maternity leave or leave job to look after children, their skills may depreciate as not in work for very long time
- employers may think work is not their main goal
- men in education for longer than women so MRPL higher

2. part-time
- have child responsibilities so work part time to also look after children
- hourly wage for part time is less

3. less prepared to commute
- prefer to be closer to home

4. male/female subjects
- men tend to study maths, physics, biology etc which means they can get higher paying jobs
- women tend to study english, sociology etc which are more caring

5. female labour force is highly concentrated in certain areas
- demand for female labour is more spread out

6. trade union density
- there are industries where trade union power is very strong which tends to be in industries dominated by men
- can demand higher wages

7. women often the 2nd wage earner in a household
- women view promotions as equally attainable but less desirable
- social stigma for men to be earning more than their wives

Question 5

Why do skilled workers earn more than unskilled workers?

Answer 5

• higher MRPL for skilled workers as more productive
• skilled workers more inelastic in supply so earn higher wages
• demand for skilled labour is high

Question 6

Why do older workers earn more than younger workers?

Answer 6

• older workers more experienced as pick up more skills overtime
• more chances for promotions
• may be due to pay scales so the more they work the higher up they move

Question 7

Why do full time workers earn more than part time workers?

Answer 7

• higher supply of part time workers than full time workers
• firms reluctant to hire part time workers as they are not secured in their job
• more people willing to supply their labour for part time jobs so wages are lower
• the level of skills and qualifications needed for part time workers is lower so earn less

Question 8

Why do ethnic minorities earn lower wages?

Answer 8

• may experience discrimination
• on average the education level is very low for ethnic minorities and so their MRPL is very low
• when they come to developed countries they tend to work low skilled jobs in the manufactoring and primary sector so earn lower wages
• tend to supply their labour to very narrow jobs