Economics
Relative Wages
Relative wages refer to the comparison of wages between different groups of workers or different time periods. It is a measure of how much one group's wages differ from another, often expressed as a ratio or percentage. Understanding relative wages helps to analyze income inequality, labor market dynamics, and the distribution of earnings within an economy.
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4 Key excerpts on "Relative Wages"
eBook - ePub- Milton Friedman(Author)
- 2017(Publication Date)
- Routledge(Publisher)
13Wages in Different OccupationsIn discussing the supply curve of labor in general, we have taken for granted the structure of wage rates for labor of different kinds—Relative Wages in different occupations. This structure of wages is itself determined by the relative demand for and supply of labor of different kinds. The reason we have been putting it aside and are able to analyze it separately is because the major forces determining the supply curves of labor in particular occupations can be regarded as largely, though of course not entirely, independent of those determining the total supply of labor.At any given time, there will exist some structure of relative wage rates (or average earnings) in different occupations. It is useful to regard this structure as the result of three kinds of forces or phenomena producing differentials between wage rates in different occupations:1. Factors other than wage rates that affect the attractiveness of different occupations to individuals in a position to choose among them: Even if there were perfect competition, perfect and costless mobility, and all members of the population had identical abilities, money wage rates in different occupations would by no means be equal. Some occupations are less attractive than others and will therefore have to offer a higher wage than others if they are to attract people to them. Given differences in tastes, the precise set of differentials that will arise in this way depends not only on the characteristics of the occupations but also on the conditions of demand. If the demand for an occupation is relatively small, it may be possible to staff it entirely with people who regard it as more attractive than other occupations, in which case the wage rate would, on this score alone, be relatively low. If, on the other hand, the demand is relatively large, it can be met only by attracting people into the occupation who regard other occupations as more attractive, in which case the wage rate would have to be relatively high. Differentials in wage rates that arise from this set of forces may be termed equalizing differences.
eBook - ePub- Stephen W. Smith(Author)
- 2003(Publication Date)
- Routledge(Publisher)
Empirical research on compensating wage differentials is largely supportive of the theoretical insights. Viscusi has estimated an earnings premium associated with injury and death of around 5 per cent. Viscusi (1993) showed that in US manufacturing there is an implied value of a worker’s life in the range $3–$7 million. Viscusi and O’Connor (1984) showed that workers in the US chemical industry responded to information and warnings about risks by demanding a wage premium and by quitting. Abowd and Ashenfelter (1981) found compensating wage differentials in the region of 14 per cent for workers subject to substantial unemployment risk. Hamermesh and Wolfe (1990) found that virtually all the compensating differential was due to longer spells of unemployment rather than the increased probability of job loss. Li (1986) suggests that workers with little in the way of educational qualifications will be less risk averse. Allowing for the fact that the less educated and poorer workers tend to do the riskier jobs leads Garen (1988) to a substantially higher value of life for a worker at $9.2 million. Thus a policy to raise human capital investment would probably increase compensating differentials and cut accidents. Duncan and Stafford (1980) found that compensating wage differentials for poor working conditions formed part of unionised workers’ higher pay than non-unionised workers. McNabb (1989) found that British workers working in poor conditions received wages some 3–4 per cent higher, providing some confirmation that the labour market does compensate workers for poor working conditions.WAGE INEQUALITYA concern with wage inequality is driven by a need to investigate the wage distribution as an important source of economic inequality. There are other aspects of economic inequality, namely: wealth, property, power, life expectancy, access to health services and education. However, we will concentrate on income because it helps determine a person’s standard of living and it is associated with other elements of economic inequality. The basic assumption of the economic analysis of human wellbeing is that,This is in spite of the problems of defining human welfare, differences and changes in prices of goods and services, varied consumption patterns and dealing with zero or negative income.Income distribution data can be presented using the Lorenz curve. Figure 3.7 contains a Lorenz curve for the distribution of income in the UK in the tax year 1993/1994. Absolute income equality is represented by the diagonal line in Figure 3.7 , with 10 per cent of the population earning 10 per cent of income, 20 per cent earning 20 per cent and so on. However, the actual income distribution in the UK was far from equal, with the income before-tax Lorenz curve being far from the diagonal, although the tax system did a little to reduce the inequality of the income distribution. From Figure 3.7 we can tell that the top 10 per cent of earners (0.9 on the x axis) accounted for almost 30 per cent of total income (0.7 on the y axis).1
eBook - PDF- Thomas Hyclak, Geraint Johnes, Robert Thornton, , Thomas Hyclak, Thomas Hyclak, Geraint Johnes, Robert Thornton(Authors)
- 2020(Publication Date)
- Cengage Learning EMEA(Publisher)
Even the most sophisticated studies of these types of relative wage changes use a simple supply and demand model as the theoretical basis for interpreting empirical results. A Relative Supply and Demand Model The type of supply and demand model useful for thinking about relative wage changes is shown in Figure 15.5. On the vertical axis the wage of skilled workers is divided by the wage of unskilled workers, and this ratio is identified as r w , which could be the average wage of college-educated workers divided by the average wage of high school graduates. Alternatively, r w might be calculated as the wage of college graduates at the 90th percentile of the college wage distribution divided by the wage of college graduates at the 10th percentile. The horizontal axis represents the number of skilled workers employed in a given time period divided by the number of unskilled workers hired in that period. The demand curve in this model is downward sloping with respect to r w . If skilled work- ers became cheaper for employers to hire in comparison with unskilled workers, the model predicts that employers would substitute skilled for unskilled workers on the job. The key idea is that skilled workers are more productive than unskilled workers in all jobs and that the productivity advantage of skilled workers increases as jobs become more complex. Of S D r N r W Skilled Wage Unskilled Wage Skilled Employment Unskilled Employment FIGURE 15.5 Relative Supply and Demand for Skilled Workers Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
eBook - ePubThe Value of Work since the 18th Century
Custom, Conflict, Measurement and Theory
- Massimo Asta, Pedro Ramos Pinto, Massimo Asta, Pedro Ramos Pinto(Authors)
- 2023(Publication Date)
- Bloomsbury Academic(Publisher)
the degree of competition in those markets, is quite vague. Different assumptions about what we interpret as constitutive factors of the determination of wages or conversely residual and temporary imperfections have important methodological and interpretative consequences. Quantitative wage studies in the long run can tell us little about how working people in a specific historical conjunctures, towns, sectors, or places of work perceived their earnings, on how income and work depended on and influenced their social status, which in turn influenced their propensity to supply their work. The welfare ratio method widely used since Allen, whether it is based on the caloric computation of a ‘subsistence’ basket or a ‘respectability’ basket, 25 remains a tool conceived to serve cliometric purposes. Without necessarily claiming, as Edward Thompson did in his invective against the ‘science of average’, that ‘is quite possible for statistical averages and human experiences to run in opposite directions’, 26 it illuminates very little about what workers considered a decent or respectable wage and life. Finally, they tell us nothing about agency. Without adopting an adequate observation scale, we can learn little on situated bargaining position and power relations between capital and labour, and to what extent workers were able to bargain through individual disputes, negotiations and collective actions to maintain, restore or improve the level of wages they considered as necessary and fair. They tell us only a one-sided story about the relationship between workers’ freedom and wages. Both Karl Marx and Lionel Robbins could agree that on the long run the level of wages are rigidly determined, though for very different reasons and potentially with very different outcomes
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