The price of capital may rise, meaning that it could become cheaper, at least in the short run, to employ more labour than capital.
In a perfectly competitive market, labour is supposed to be homogeneous, meaning that labour is perfectly mobile and there are no barriers to entry of a particular trade. The perfect labour market also has the characteristic that all labour is geographically mobile.
Why Do Wage Rates Differ?
Graduates and Non-Graduates
As you can see from the graph above, graduate earnings for each age bracket are significantly higher than those of non-graduates.
This is due to the fact that graduates are in higher demand, due to the prestige that is associated with having a degree and are seen as having higher marginal revenue productivity. Graduates are also more likely to be qualified for higher paid jobs, whereas those without degrees may find that this is a barrier to entry for a lot of the higher paid jobs, which would automatically limit their earnings.
Gender
Average gross weekly earnings of full-time employees by gender
Source : New Earnings Survey
From the graph, the conclusion that men earn more than women per week can be drawn. A number of reasons can be given for this. For example, women are more likely to be out of the labour force while raising children. This can often hinder there promotion chances, partly because of the time away from work can mean that women lose out on valuable work experience.
However, if you look at the graph below, then you can see that the earnings gap has decreased significantly over the years. This is due to the fact that more women are choosing not to have children, or to return to work soon after childbirth. Another factor is that more women are going to university, meaning that they are just as qualified as male graduates.
One more reason is that that National Minimum Wage has boosted some of the poorer earners up, closing the gap on their male counterparts.
However, women are still lagging behind due to the fact that many women work in the poorer paid jobs. According to the 1999 New Earnings Survey, which is carried out by the Office of National Statistics, women only accounted for 30% of the top 10 paid jobs, while at the other end of the scale the worst paid job was retail operators, women made up 86% of the workforce.
Ratio of Women’s pay to Men’s pa y