by Wage differentials that show the differences in the rate of wages among workers working in the same unit, different units, different occupations, different regions and the like have emerged as a common feature of labour markets in various countries.
Wage differentials bear a direct relationship to the diversity in occupation and industries that exist in the economic sphere of activity in a country. A certain job requiring a certain skill is paid more or less than another job requiring a different skill either in the same or some other industry. There are a variety of contributory factors.
Wage differential refers to differences in wage rates due to the location of company, hours of work, working conditions, type of product manufactured, or other factors. It may be the difference in wages between workers with different skills working in the same industry or workers with similar skills working in different industries or regions.
We will get different terms as occupational wage differentials, inter-industry, inter-firm, inter-area or geographical differentials and personal differentials because wages differ in different employments or occupations, different industries and localities, and even between the persons in the same employment or grade, etc.
If it is depressed, this will have some effect on wages and consequently on the grades. The rate of dearness allowance (DA) depending on the index chosen will affect wage differentials. In many situations, arbitration or judicial pronouncements have favored a higher quantum for the lowest category of workers.
On a wide scale, there has not been a systematic attempt at job evaluation – an exercise which would have identified the differences in terms of skill training experience, etc. between jobs and provided for relative weightages which could lead to standardization and eradication of distinctions for the same type of jobs.
In the modern organized sector, where collective bargaining is prevalent, there is a trend towards job evaluation schemes. The influence of collective bargaining in terms of pushing up wages in some industries and regions has been quite significant, especially in situations where collective bargaining is coupled with union strength.
Finally, the difference in terms of a unit’s level of productivity and profitability and its influence differentials has to be considered. If both productivity and profitability are high, then the wages sought and given are correspondingly bound to be high.
Salary Differentials and Economy Functions:
Salary differentials perform important economic, functions like labour productivity, attracting the people to different jobs. Since most of the workers are mobile with a view to maximising their earnings, wage differentials reflect in variations in productivity, efficiency of management, maximum utilisation of human force etc.
Attracting efficient workers, maximisation of employee commitment, development of skills, knowledge, utilisation of human resources, maximisation of productivity can be fulfilled through wage differentials, as the latter determines the direct allocation of manpower among different units, occupations and regions so that national production can be maximised. Thus, wage differentials provide an incentive for better allocation of human force, labour mobility among different regions and the like.
Salary differentials play pivotal role in a planned economy in the regulation of wages and development of national wage policy by allocating the skilled human force on priority basis. Development of new skills, knowledge etc., is an essential part of human resource development.
Shortage of technical and skilled personnel is not only a problem for industries but it creates bottlenecks, in the attainment of planned goals. Thus, wage differentials to certain extent, are desirable from the view point of national interest. As such, they probably become an essential part of national wage policy. Complete uniform national wage policy is impracticable and undesirable.
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