WAGE DIFFERENTIALS AND
WAGE DISCRIMINATION
A2 Economics
Aims and Objectives
Aim:
 Understand wage differentials in the labour market.
Objectives:
 All: define wage differentials
 Most: analyse wage differentials in the labour
market
 Some: evaluate whether or not wage differentials
can be justified
Starter: Discussion



Why do men on average get paid more than
women?
Why do premiership footballers get paid more than
brain surgeons?
Why do white people on average get paid more
than black people?
Wage Differentials
Definition:
 Differences in wage rates arising between individuals,
occupations, industries, firms, and regions.
Task: In groups try and think of as many reasons, as to
why wage rates differ in an economy.
Why do wages differ?
1
• Labour is not homogeneous, therefore have different MRP, therefore
different demands, different supplies, and discrimination exists
between labour.
2
• Labour is not perfectly mobile therefore there are differences in
regional pay and between jobs. (Geographical and Occupational
Mobility of Labour)
3
4
• Trade unions on the supply side of labour bargain for higher wages
for their members
• Monopsonist employers on the demand side of labour drive down
wage rates.
Wage Differentials Between Groups
Skilled and Unskilled Workers



Skilled workers receive higher
wages than unskilled workers
because the demand for skilled
workers is higher and they are
in fewer supply.
MRP of skilled workers is higher.
More difficult to substitute
skilled workers
Wage Rate
/MRP
Wage Differentials Between Groups
Neurosurgeons
SN
WN
Cleaners
SC
WB
DC
DN
QC
Quantity of Labour
Employed
Wage Differentials Between Groups:
Gender







Differences between gender.
Men are paid more than women.
In part due to more women working part time than
men.
MRP of women is less than men, therefore firms
demand more men.
Greater percentage of women work in lower paid
jobs.
More men attend university
Data
Wage Differentials Between Groups:
Part Time and Full Time Workers




Part time and full time workers.
Part time workers tend to
receive lower pay than full time.
Supply of part time workers is
relatively high compared to
demand. (MRP is low)
Smaller percentage of PT
workers are members of trade
unions.
Wage Differentials Between Groups:
Ethnicity



Workers from ethnic minority
groups are paid less on
average than white people.
High % are employed in part
time jobs such as restaurants
where pay is low.
Data
Mr Average of Football Nets £1m



Is the pay of top
footballers
justified?
Economic argument
for and against.
Why shouldn’t a
nurse be paid as
much? Both have
inelastic demands!