Fair and Unfair Wage Differences, Essay Example

Introduction

The term wages refers to the amount of money paid to workers, which unlike salary, may vary depending on the pay period or hours worked. Among organisations that pay multiple rates to workers who do the same job, the average spread in the wages between the high and low rates range by industry, occupation and size of organisation may differ. Several circumstances exists that account for a fair wage differences. However, in situations of discrimination or union membership, the differences may tend to be unfair.

Fair Wage Differences

First, compensating differentials accounts for the differences in remuneration between individuals in the same occupation.  Under this circumstance, higher wages are given to reward more risk-taking, working during unsocial hours or poor work conditions. The geographic area also affects the ranges of wages paid to workers. For instance, occupations situated in urban areas tend to attract higher remunerations due to the higher living costs in the cities. Additionally, individuals working in treacherous areas earn an extra pay in the form of allowances to compensate for the hardship they have to go through (Buckley, 1985).

Next, the variation in accumulated human capital is a critical factor. Jobs that require higher qualification or education level tend to attract higher wages. Under this situation, higher wages are given to compensate workers for their investment in education. This is since an opportunity cost exists in obtaining higher qualifications, which is determined using the foregone current earnings by staying in part-time or full-time education. Additionally, the duration of work hours also accounts for the differences in wages. For instance, in organisations where workers are willing to work for longer hours tend to earn over-time, hence earn relatively higher wages.

Difference in skill levels is another factor. The gap existing between highly-skilled and poorly-skilled workers widens each subsequent year. Jobs that need higher skills level and training often fetch higher pay.  This is since the demand for the skilled labour in a service or manufacturing sector increases more rapidly compared to the semi-skilled labour. This increases the average pay levels. On the other hand, highly-skilled labourers tend to experience inelastic supply and the increasing demand pushes up the “going wage rate” in an industry. All workers are not equally efficient. Their capabilities differ. Efficient workers give higher outputs and hence are paid higher wages compared to others. Additionally, the degree of efficiency required in different occupations varies. For instance, a doctor has to be more skilled in patient care and treatment than a nurse (Buckley, 1985).

Variation in revenue creation and productivity also explains the difference in wages. Here, workers with high efficiency and capability to generate greater revenue for an organisation are rewarded with higher wages. The level of experience also explains the difference. This is since individuals with vast experience tend to obtain higher pay than those with less. In the same way, workers who have worked for more years tend to earn higher wages despite having the same qualification. A possible explanation is that employees who have worked for longer years are generally perceived to have higher experience, hence higher productivity. This rationalises the higher pay.

Demand factors also explain the differences in pay structures. Organisations that deal in goods and services that are of high demand often pay higher remunerations than those that deal in commodities of low demand. The supply factors are also critical. Industries with shortage of employees often pay better remuneration to attract more employees. Seasonal or irregular jobs also tend to attract higher pay than regular employments. For instance, wages tend to rise more rapidly when the end demand for the workers’ output is high. This is since people tend to receive higher wages in industries where the output is rising because of the relatively higher profits and revenues. As a result the demand for labour moves to the right while the market equilibrium for wages rises (See Fig 1).

Unfair wage differences unfair

The wage differences may be fair under circumstances of discrimination. Discrimination occurs when employers tend to pay some employees less because of their race, religion, gender or ethnicity.  Unfair pay structures include the gender pay gap, where women tend to receive relatively lower pay than men, despite having better qualification than men. In the United States for instance, the pay gap was about 40¢ to the dollar in the 1960s, which plummeted dramatically in the 1990s to around 4¢ and to 1¢ in the 2000s (Coy & Dwoskin, 2012).

Trade Union protection also accounts for the unfair wage differences. This is since many workers in lowly paying jobs lack trade unions to protect them from the power of employers. Trade union members have more potential to negotiate for higher remunerations than non-members. Additional, individuals with higher qualification yet are not members of the trade union may get less remuneration compared to those with trade union-membership.

Conclusion

Not one single factor can explain the differences in pay, existing and persisting in occupations or between occupations within an industry or the economy.  The factors accounting for fair wage difference include compensating differentials, difference in skill levels, the variation in accumulated human capital, and labour demand and supply factors. The wage differences may be fair under circumstances of discrimination and during Trade Union protection.

References

Buckley, J. (1985). Wage differences among workers in the same job and establishment. Monthly Labor Review,  1(1), 11-16

Coy, P. & Dwoskin, E. (2012). Shortchanged: Why Women Get Paid Less Than Men. Bloomberg Businessweek. Retrieved; <http://www.businessweek.com/articles/2012-06-21/equal-pay-plaintiffs-burden-of-proof>