wage differentials between occupations
No one factor explains the gulf in pay that exists and persists between occupations and within each sector of the economy. Some of the relevant factors are listed below
- Compensating differentials - higher pay as a reward for risk-taking, working in poor conditions and having to work unsocial hours
- Differences in accumulated human capital - wages and salaries should help to compensate people for making an investment in education. There is an opportunity cost in acquiring qualifications - measured by the current earnings foregone by staying in full or part-time education. The private rate of return on achieving A levels or a university degree should be sufficient to justify the investment made
- Different skill levels - the gap between poorly skilled and highly skilled workers gets wider each year. One reason is that the demand for skilled labour (in both manufacturing and service sectors) grows more quickly than the demand for semi-skilled workers. This pushes up average pay levels. highly skilled workers are often in inelastic supply and rising demand forces up the "going wage rate" in a particular industry
- Differences in productivity and revenue creation - workers whose efficiency is highest and ability to generate revenue for a firm should be rewarded with higher pay. City economists and analysts are often highly paid not least because they can claim annual bonuses based on performance. Top sports stars can command top wages because of their potential to generate extra revenue from ticket sales and merchandising.
- Employer discrimination - a factor that cannot be ignored despite over twenty years of equal pay legislation in place.
- Trade Union protection - many workers in low paid jobs do not have trade unions acting on their behalf to protect them from the power of employers.
Wages will tend to rise fastest when final demand for the output that workers are producing is rising - i.e. people will enjoy higher pay in industries where output is rising, as revenues and profits are high. The demand for labour shifts out to the right, and the market equilibrium wage increases. This is shown in the diagram below:
WAGE DIFFERENTIALS BETWEEN REGIONS
Pay and earnings levels differ greatly between the main regions of the United Kingdom. There are also wide variations in average pay levels within regions - in particular within the inner cities
The latest evidence on regional pay shows that Londoners take home an average of £520 a week before tax, far above the UK average of £400.
- Workers in the south east have the second-highest pay packets - £423.20. But workers in the north east are at the bottom of the pay scale, with average weekly pay of £349.60.
- Weekly wages in Wales are also well below the average at £353.60 and in Scotland the average take-home pay is £364.90.
- The average annual salary in the UK before tax is £20,919.
Partly this difference reflects variations in the average cost of living in the country, Living costs are much higher in London and wages need to reflect that.
However two other factors include
- regional variations in unemployment
- different structure of jobs within a region (for example the dominance of financial services in London and the South East contrasted with a heavier reliance on traditional manufacturing in the north east)
THE PAY OF DIRECTORS
The media have made much of the issue of Director's pay in recent years with numerous claims of "fat cat" salaries and generous share-options schemes for the directors of many leading quoted companies.
Average pay for chief executives in Britain's 510 biggest companies in 1997-98 was £413,000, more than 18 times as high as the average national figure of £22,430. Total remuneration rose to £588,500 or 26 times average earnings when long-term incentives were added
Working with Our Partners
Boston House | 214 High Street | Boston Spa | West Yorkshire | LS23 6AD | Tel +44 0844 800 0085 | Fax +44 01937 529236
Company Registration Number: 04489574 | VAT Reg No 816865400
tutor2u is proud to sponsor TABS Cricket Club and Collingham JFC as part of its programme of investment in local junior sport