Wage differentials Introduction & overview · In an economy-wide perfect labour market; - Homogenous units of labour - Perfect knowledge - Perfect mobility - Workers and employers as wage-takers - Flexible wages in response to changes in D/S · Wages differ however, because; - Each worker is unique/has unique characteristics (so not homogenous) - Market forces tend to equalise net benefits to workers, rather than net wages - Labour isn't perfectly mobile, even if there is perfect knowledge - Lack of competition on supply-side and demand-side Each worker is unique . Differing MRP therefore different demand for different types of labour . Different supply for different types of labour · Discrimination (despite anti-discrimination legislation) Market forces . Will tend to equalise net benefits rather than net wages . In reality, labour market decisions are based on more than just the wage, e.g .; - Stress - Material perks - Job satisfaction - Risk level Immobility of Labour · Occupational & geographical · Lack of perfect knowledge Lack of Supply/Demand-side competition · On Supply-side; - Trade union power - Collective bargaining - Strength of unions varies depending on industry/occupation - This results in one side being the wage taker and one being the wage setter · On Demand-side; - Due to powerful monopsony employers - When a buyer has so much power, they can set their own wage rather than employ at the going rate set by a competitive market
Question: "Why do airline pilots get paid more than nurses?" - Monopsony power of NHS compared to private airlines - More risk in being a pilot - Length of training longer for pilots than nurses - People going into nursing tend to want to help people/caring etc. instead of being money/lifestyle-motivated like pilots - MRP too high for nurses? Airline pilots could earn more than nurses due to the level of risk associated with the job. Therefore, a higher wage rate is needed to encourage people into the profession. On the other hand, those who go into nursing may be motivated by their desire to care for others, and for the sense of reward from this, so aren't motivated as much by wage rate. This would be the labour market equalising the net benefits, rather than wages. On top of this, the time and costs of training for pilots is longer than for nursing, so a higher wage rate is required to make people see the profession as worthwhile, while nurses again being less income- motivated, see the training as worthwhile without the extra income. In addition, while there is more demand-side competition for pilots from private airlines, the monopsony buyer of labour for nursing is the NHS, meaning that it can set the wage rate rather than take it. This is compounded by weaker nurse trade union power, whereas pilots have strong unions, meaning that there is a lack of competition on the supply- side for pilots, and thus they are able to demand or set a higher wage. Articles