Factors contributing to Wage Differentials

Wage/Salary differentials have a number of implications both at macro and micro levels. At the macro level, these differentials determine the allocation of human resources and non-human resources. This allocation determines the growth pattern in the economic system.

When a particular industry or occupation offers higher wages and salaries, the economic resources are geared to develop such personnel. For example, in India, educational activities have increased in the areas of management and information technology because these areas offer higher salaries and better job opportunities.

At the micro level, wage/salary differentials show that some organizations use proactive strategy to attract better talents as compared to others. They become trend-setters rather than play the role of followers. These trend-setters set pattern not only in relation to recruitment of better personnel but in terms of other human resource management practices too.

Wage differentials under market economies should exist in order to perform the following functions:

1. To attract the talent and skilled people. Talented candidates get six figure salaries.
2. To pay on the basis of employees’ talents and skills
3. To satisfy the talented employees as they get higher salaries compared to low skilled employees
4. To allow the companies to build distinctive competences
5. To encourage less skilled employees to develop their skills and other human resources in order to get higher pay
6. To discriminate highly committed from less committed and positive attitude employees from negatives.
7. To maximize organizational productivity and efficiency.

Factors Responsible for the Differences in Wages and Occupation

The following important factors are responsible for the differences in wages between occupations:

1. Difference in Efficiency:

All persons are not equally efficient. They differ in abilities. Some are more efficient and some are less efficient. Some others are not efficient at all. An efficient worker gives better output. Hence, he is paid higher wages than others. Moreover, the efficiency requirement in different jobs varies.

A doctor requires more skill than a nurse does. A district collector is entrusted with heavy responsibilities and the job necessitates ability and intelligence. On the contrary, the job of a sweeper does not require them. Hence, wages differ between occupations.

2. Presence of Non-Competing Groups:

Society is divided into a number of working groups, which are noncompeting. Caste system creates such groups in India. As a result, a child born to a sweeper will most likely be a sweeper just as a black smith’s son will be a black smith.

Besides, the chances of receiving training for better-paid occupations depend on the resources of the family. Thus, inheritance, environment, training and sex are some factors, which create noncompeting groups in the society. Hence, workers belonging to different groups are paid at different wage rates.

3. Immobility of Labour:

Labour is not perfectly mobile. They are normally shy to move. It has inertia to stick to one job. Sometimes, people are not prepared to accept higher wages if it necessitates a change of place. This accounts for difference in wage in different places. The presence of noncompeting groups in society makes labour more immobile. Political barriers against the free movement of labour from one country to another result in the difference in wages in different countries.

4. Nature of Employment:

The nature of work also influences wage rates. Dangerous and disagreeable work brings higher money wages to attract larger supply of labour. For example, a coal miner gets higher wages than a clerk in the office. High money wages act as compensation.

5. Training and Qualification:

Jobs requiring special qualification and apprenticeship generally command higher wages than jobs learnt easily and for which no special training is required.

6. Productivity:

This differs in different occupations. The Cobbler’s job is not as productive as that of a skilled motor mechanic or of clerk as that of a principal of a college.

7. Regularity of Employment:

If there is regular employment in a job, one may demand lower wages. If the job is irregular or seasonal, wage has to be higher. In case of India, young men prefer low paid jobs under government due to security and regularity of employment to irregular and insecure private jobs with more remuneration.

8. Future Prospects:

There are some jobs where promotion prospects are better than other jobs. Even if initial salary is low, if promotion prospects are there people prefer these jobs to others jobs.

9. Scope for Extra Earning:

If a job has scope for extra earnings, the regular wage may be lower. A doctor may start with a lower salary than a lecturer but the former can make up the deficiency by private practice.