14.1 Wage Differentials
We argued in the last chapter that if all workers were identical, all jobs
had the same working conditions, and labour markets were perfectly
competitive, all workers would earn the same wage. In reality, however,
wages vary enormously across such dimensions as occupations, skills,
amounts of education, and geographical areas. Generally, the more
education and experience a worker has, the higher are his or her wages.
Given equal education and experience, women on average earn less than
men. Workers in highly unionized industries tend to be paid more than
workers with similar skills and experience in non-unionized industries.
Such differentials arise because workers are not all identical, jobs are not
all identical, and important non-competitive forces sometimes operate in
labour markets. We now look more systematically at some of the main
reasons that different workers earn different wages.
Wage Differentials in Competitive
Labour Markets
Wage differentials exist in competitive labour markets because workers
are not all identical and jobs are not all identical. We examine four main
reasons for existing wage differentials.