The labour market experiences several disparities in wages due to several reasons. The labour market imperfections and classical economic theory are some of the issues that explain the cause of such inequality. Workers with better skills command higher wages due to inelastic supply and high marginal revenue product (MRP). A worker with limited skills is likely to earn lower wages and employment benefits relatively. Jobs with limited skills requirements are associated with lower wages because their supply is more elastic, hence leading to wide disparities. In an ideal labour market, such inequalities may be magnified by labour imperfections such as geographical immobility’s, monopsony and inadequate information (Deininger et al., 2018). The other factor that leads to such disparities is productivity. More productive workers are likely to earn higher wages than less productive workers.
Several demand and supply factors play a key role in determining the amount of wages. The employers are required to pay wages that are equal to the MRP of the employee. The employers have power in determining wages for their employees. Firm A may choose to pay less wages compared to firm B despite the employee working in the same field and having equal salaries. The terms of employment is another factor. For example, part-time workers are paid less wages compared to full-time workers. Discrimination also leads to such disparities; for example, women being paid lower wages than men (Mihăilă, 2016). Profitability is another reason for such inequality; companies making higher profits are likely to pay relatively higher salaries. I witnessed wage disparity when I used to work in a particular company as a cleaner. I was paid lower wages as compared to the other more experienced and skilled employees in the organization.
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References
Mihăilă, R. (2016). Female labor force participation and gender wage discrimination. Journal of Research in Gender Studies , 6 (1), 262-268.
Deininger, K., Jin, S., Liu, Y., & Singh, S. K. (2018). Can labor-market imperfections explain changes in the inverse farm size–productivity relationship? Longitudinal Evidence from Rural India. Land Economics , 94 (2), 239-258.
