• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Explain the functions of wage differentials in a market economy.

Extracts from this document...


Explain the functions of wage differentials in a market economy. Wage differentials occur in all markets, in some cases these differentials act to attract people to the market who would not ordinarily consider those jobs and to reflect the rarity of skills etc., however there are also other wage differentials, which occur due to market imperfections and discrimination on the part of the employer. Labour market imperfections can occur on both the supply and demand side or in some case both sides. Wages are lower when the employer is a monopsonist because they act as a monopolist and can erode union control of the labour in the market. On the supply side of the labour market Trade Unions cause imperfections, by using the threat of strikes and labour supply they can force up wages to the detriment of employment levels. When the market has both demand imperfections in the form of monopsony and supply imperfections in the form of Unions the wage will depend on the negotiating position of the two sides. There can be wage imperfections when information failure occurs, employees may be misinformed about the availability of jobs at different wages. ...read more.


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 ...read more.


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. Martin Fox BPH 12/08/03 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Advantages and disadvantages of minimum wage.

    This is a trade-off, quid pro quo. Wage MPPL2 MPPL1 k3 Wm k2 W1 k1 L2 L1 Quantity of Labor This diagram shows that when wage is increased from W1 to Wm (minimum wage), labor force has to be decreased from L1 to L2, causing unemployment. However, to maintain the same labor force (at L1), the marginal

  2. The Quest for Optimal Asset Allocation Strategies in Integrating Europe.

    of industries, to switch to the tangency portfolio of a industries-and-country allocation scheme. This is in line with the high Sharpe ratio of the industry tangency portfolio in that subperiod, which is found to be significantly higher than the Sharpe ratio of country portfolios.

  1. Chinese car market overview. Citroen case study

    to place some; On the other hand, the car industry was not developed at all, therefore their was not much of a choice for the customer. In 2001, this amount of 3.2 million reached 18 million cars. The amount of private car holders is definitely climbing.

  2. Tourism market analysis Polish economy

    The main reason for this decline in hotel demand during these years was the economic slowdown of the Polish, Russian and German economies. In 2002 there was a significant increase in new supply of approximately 12.5% (the Hyatt Hotel and the Radisson SAS hotel), and for the first time since

  1. Victoria Junior College

    the costs of President Johnson's social welfare program took its toll of the dollar in 1960. As Thomas Lairson noted, "The economic relations that developed after 1948 were structure by these fixed values even as the shift from US surplus to deficit increasingly demanded adjustment of exchange rates."5 As such,

  2. What justification isthere for the introduction of the National Minimum Wage?

    The implementation of a minimum wage is generally thought to increase productivity; however, this may not necessarily be true: if other work practices had been beneficial, surely they would have already been implemented?

  1. Living Wage

    This is the practice of companies of moving parts of their operations to low-wage countries especially developing one's as that which is exemplified above. This presents a two-fold problem. On one hand, although the developing countries apparently benefit from off-shoring, it perpetuates the unjust implementation of unreasonable wages even more.

  2. Retailing In India - A Government Policy Perspective

    While SSI reservation has been progressively relaxed, some products remain restricted (including bread, confectionery, etc.,) and the legacy effect is strong. Food processors are, therefore, not able to reap the benefits of scale (cost) or invest in brand building. Also, food processors are absent in key segments such as fruit and vegetables and dry groceries.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work