Meaning:

The term wage differential refers to the wage differences which exist between different occupations or different individuals in the same occupation. For example a film star may earn RS 2cr a year which a bank clerk may earn only 1.2 lacs a year, again one film star may earn more than the other film star. This we come across wide differences in the earnings of different persons. The causes for the wage differentials are classified in to demand for and supply of labor.

Causes for wage differentials

• Demand for labor
• Supply of labor

Demand for labor:

1. If the demand for any type of labor is high it will command a higher wage and vice versa.
2. If the demand for any of labor is in elastic then it will command higher wages and if the demand is elastic it will command lower wages.
3. In general wages are equal to the marginal productivity of the labor but it is to be noted that the marginal productivity of labor is different in different occupations depending upon  degree of scarcity of each kind of labor in relation to demand for it. Hence wages are born to be different.
4. When the economy is growing, businesses expand, leading to an increased demand for labor.
5. High consumer demand for goods and services prompts businesses to hire more workers to meet this demand.
6. Lower wage rates can increase the demand for labor as it becomes more cost-effective for businesses to hire additional workers.

Supply of labor:

The supply of labor in any particular occupation depends on the following factors;

1. Conditions of work: person for employed in agreeable light, clean, fairly comfortable, respectable and pleasant occupation usually get low wages for example clerks, typist, teachers etc are very poorly paid. On the other hand people employed in disagreeable, risky, unpleasant, and dirty and tire some jobs are paid high wages.
2. Cost of training: jobs that is more simple easy and cheap to learn carry low wages as against those job which are difficult more expensive and take more time to learn.  For example the wages of engineers’, doctors, computer programmers etc higher than those of ordinary and untrained unskilled and inexperience workers.
3. Regularity of employment: those jobs that provide a regular and permanent employment throughout the year will be accepted by the people even if the earnings are low on the other hand in case of irregular seasonal and temporary jobs the level of wages high vice versa.
4. Degree of fail in confidence and trust: people on whom a greater degree of faith, confidence and trust is to be reposed will on higher wages towards for example goldsmith, jewelers, managers, internal auditors Etc. in such jobs one has to maintain secrecy and high degree of responsibility hence they command high wages
5. Dangerous and risky jobs: people who are employed in risky and dangerous jobs receive higher wages than other. For example pilot, workers working in mines etc.
6. Natural gifts: there are certain jobs which requires some natural gifts everybody cannot be a successful actor, musician, sport person, artist Etc. since there very small in supply there earnings are very high.
7. Intelligence ability talent and knowledge: people with higher level of intelligence, knowledge, talent and abilities will earn much more than ordinary workers. These people come under the “non competing groups”.

also read: write a note on Quasi rent.