Employees who invest time in education are more valuable to employers due to higher productivity and consequently they can demand a higher wage than unskilled labour. The acquiring of skills is called human capital investment and is seen as a long-term assurance of high quality on the part of employers and long-term high wages on the part of employees. Many professional occupations require several years of full-time education at university or college and others require intermediate qualifications. One can see that through the increasing modernisation and industrialisation the demand for skilled labour continues to rise whilst employment opportunities for the unskilled continue to fall. The use of wage differentials in this situation is to reward the work involved in the attaining vocational qualifications; however, this is to the detriment of unskilled workers whose jobs become obsolete.
Another wage differential occurs as a compensating factor to employees who have to endure less attractive work conditions, this is known as a compensating wage differential. Where working conditions are undesirable then the supply will be reduced and therefore wages will have to be higher to attract the adequate amount of labour. Also, occupations, which demand unsociable hours, will command a higher wages than comparable jobs. Pay may not be the only thing, which will be used by employers to compensate for poor working conditions ie. A number of non-monetary benefits such as long-holidays with pay, the opportunity to travel etc. will all be used to increase market supply.
Regional variations can also explain certain wage differentials, as wages are high in certain areas then labour will be drawn there, however, firms will try and do the opposite. Through the push and pull of certain factors, in the long run, the market should correct any regional differentials especially in key work areas.
Discrimination can also account for certain wage differentials, racial and gender discrimination can account for a large amount of the differential in wages between white males and the rest of the working population. Employers will pay women and ethnic minorities less due to ill-informed views about the intelligence, loyalty and productiveness of female and non-white workers. The govt. has taken some action to counteract these unwanted and unproductive wage differentials with the introduction of the Equal Pay Act, the Sex Discrimination act and the Race Relation Act.
Wage differentials in a market economy are there to correct and compensate for differences in labour markets, however they are not all perfect and can be divisive and unproductive.
Using the data in Extract B assess the view that the gap between male and female earnings has been substantially reduced since the mid 1980s
Although the data in Extract B does show a rise in female earnings, the assertion that the gap between male and female earnings has substantially reduced is a fallacy. The gap between female and male full-time earnings per hour in 1986 was £1.26; by 1998 it had hit the £2.00 mark. The ratio of female to male earnings has risen over the period, however it is debatable whether or not a rise of approximately 8% is a “substantial reduction” in the gap between male and female earnings, I believe that an 8% reduction, although helpful is not substantial. One can see though that women have gained more equality when it comes to part-time earnings and the gap has been reduced substantially in that area, however, one would have hoped that earnings could have carried along the same trend as we saw in 1988 when the ratio of female to male part-time earnings rose significantly. It is thought that differences in education and skills etc. only account for half the difference between male and female earnings, which means that there is still a lot of discrimination going on in the UK so I believe the view that the earnings gap has been substantially reduced is over-optimistic and misguided.
Evaluate the view that government intervention in the labour market will damage the performance of the United Kingdom economy.
Government intervention in the labour market directly affects the flexibility of the labour market. A flexible labour market is one in which it is simple and low-cost for firms to adjust the amount of labour they are utilising, this includes such measures as changing the hours worked by each employee and changing the number of employees the firm has. This will mean minimal regulation of the terms of employment on the part of the government, this would mean no minimum wage, no legislation on hours of work, pay entitlement, workers rights etc. For more labour flexibility the powers of unions have to be severely reduced. It is characterised by opponents of flexibility as giving all the power to the firms allowing them to treat workers as they so wish leaving them insecure and unproductive.
The alternative to the idea of flexibility is wholesale government intervention to insure that workers are secure in their jobs and therefore they will be more open to advancing their skills and they will be more productive. Supporters of the idea of flexibility claim that it will improve economic efficiency by leaving labour demand and supply to market forces. However, it is arguable whether government intervention to counteract such failures as racist and gender discrimination is truly damaging the UK economy. Another argument against the ideas of ultra flexibility is that it breads poverty and a wage gap. We can see from the US economy where government intervention is low, broadly speaking GDP is increased and unemployment is relatively low however the gap between high-wage and low-wage workers pay compared to the median is far greater in the US to the figures for Europe where governments are not afraid to intervene where necessary.
