In an economy, wages vary from occupation to occupation and also vary even within the same occupation.
The cause of wage differentials can broadly be classified into two categories:
1. Wage differentials between different occupations.
2. Wage differentials within the same occupation.
1. Wage Differentials between Different Occupations:
(a) Difference in Demand for Goods:
Demand for labour is a derived demand. It depends upon the demand for goods in the production of which they are employed. Demand for different commodities is not the same. Differences in demand for different goods are an important factor that can be held responsible for wage differentials.
(b) Expenses on Training:
There are certain occupations where a lot of training expenses are incurred. Special qualifications have been fixed for these occupations. For example engineers and chartered accountants etc. have to attain special qualifications before they enter these occupations. In occupations where much training expenses are incurred, wages will be higher or vice-versa.
(c) Supplementary Income:
People are ready to work at low wages in those occupations where they can supplement their income compared to workers working in those occupations where there are fewer chances for them, to supplement their incomes.
(d) Risk of Life:
In certain occupations, a great risk of life is involved. Therefore in such occupations, money wages are higher than the wages in less risky occupations.
(e) Social Status:
Every person enjoys some sort of status in the society because of his occupation. The greater the respect a person enjoys the lower the wages at which he would be ready to work. Different occupations differ from one another from the social prestige point of view. So wages tend to vary from occupation to occupation.
(f) Future Prospects:
Future prospects in different occupations are not the same. There are certain occupations where there are great chances of promotion, whereas there are others where there are no such chances of promotion. People are ready to join occupations, where their future is bright at low wages.
2. Wage Differentials within the Same Occupation:
Wages differ not from occupation to occupation, but also in the same occupation. They differ from person to person, place to place within the same occupation. The reasons for this may be given as under:
(a) Differences in Efficiency of Labour:
All labourers are not alike. They differ in their efficiency. More efficient workers get better wages as compared to less efficient workers.
(b) Geographical Mobility:
Wages differ within the same occupation at different places. A cobbler earns much more in Delhi than at Sonepat. These differences are due to immobility of labour. This geographical immobility is caused by factors like lack of knowledge about the availability of work, family affection, customs, language etc.