wage differential A difference in wage rates between two types of worker.

Wage
differentials may be on account of different levels of skill, different formal
qualifications, between unionized and non-unionized firms, or between workers of
different age, sex, or ethnic groups. In the UK wage differentials based on age are
legal, while those based on sex or ethnic group are not. The desire of groups to
maintain traditional differentials …

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
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