17. Labour Markets - Wage Differentials & Discrimination

Question 1

What are the economic arguments behind why there is a gender pay gap?

Answer 1

Women more in & out of the work force than men due to child care etc. - reduced experience and MRPWomen leave the workforce to have kids at a crucial time when people may real economic strives in there careersIn developing countries women still lack the same education & qualifications etcThere are more women in lower-paid jobs like part-time work, public-sector work or vocational workIncrease in supply of female workers - now socially acceptable to work - higher supply = lower ‘price’

Question 2

What is the non-economic argument behind why there is a pay gap?

Answer 2

Discrimination - despite all the legislation designed to prevent it perhaps women are still discriminated against in the workplace

Question 3

What are the economic arguments behind why different professions are paid different wage? (e.g. footballer v teacher)

Answer 3

The MRP of different professions varies - footballers bring in loads of revenue through league position, merchandise & TV coverage - teachers less soThe supply for footballers is v low and inelastic compared to teachers but the demand is v highTeachers are paid by a monopsonist employer in the state footballers aren’t Teaching has a vocational element to it - state know ppl won’t leave if wage fall - exploit thisReduced bargaining power of teacher TUs bc of reluctance to strikeFootballers are not homogenous - unique - clubs have to pay more as a result

Question 4

What are the economic arguments behind regional variations in wages - North - South divide - in the UK?

Answer 4

Restructuring of economy - loss of manufacturing jobs (North) growth of financial services jobs (London)Negative multiplier effect - less manuf. jobs - less spending - less demand for other products - labour = derived demand - more unemploymentOccupational & Geographical immobility of workers in the North prevents movement & balancingMovement that does occur is of the most productive workers - exacerbating the divide further

Question 5

What are the economic arguments behind the variations in wage by ethnicity?

Answer 5

Minority groups with lower skills & qualifications will have a lower MRP and can’t bargain for higher wagesLanguage barriers/issues reduce productivity and employability especially in higher paid occupationsConcentration of ethnic minorities in low paid jobsGenerally live in ‘poorer’ areas of the countryReluctance to migrate to earn more

Question 6

What is the non-economic argument behind the variations in wage by ethnicity?

Answer 6

Discrimination - despite all the legislation designed to prevent it perhaps ethnic minorities are still discriminated against in the workplace

Question 7

What are the advantages of wage differentials? (1)

Answer 7

1. Incentivises ppl to get good education, skills etc2. Trickle-down effect - spending from high earners will eventually benefit everyone3. Encourages enterprise - ppl are more likely to take a risk knowing the potential earning levels are very rewarding

Question 8

What are the advantages of wage differentials? (2)

Answer 8

4. Encourages work not welfare - high potential earnings reduces the appeal of living off benefits5. Promotes efficient resource allocation - labour will move to where labour is most productive - if wages rise in an industry those with the relevant skills will move into it - right ppl in the right areas

Question 9

What are the disadvantages of wage differentials?

Answer 9

1. Income Inequality - higher benefits - less economic growth - more social cost - poverty etc2. Trickle-down effect doesn’t work - tax evasion or spending money on imports etc - rich have a high marginal propensity to save3. If the gov. are deemed to be causing the differentials as a monopsonist employer of teachers etc they themselves won’t want to raise wages to solve the problem

Question 10

What are the evaluation points for the impacts of wage differentials?

Answer 10

1. Compare costs & benefits 2. What degree of inequality - small scale is generally more beneficial - large scale = negative3. Risk of gov. failure - if you think gov. intervention wld lead to gov. failure maybe its worth allowing differentials to persist 4. L-run v S-run - income inequality causes issues in the S-run but l-term increased entrepreneurship may be more beneficial - or other way round?..