Chapter 10 - Wage structures across markets. In this chapter, we will address the following questions: Why do wages vary across markets? Are public sector workers overpaid? Why are wages lower in some provinces? Are wages higher in large firms? Which industries and occupations provide the highest wages?
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Chapter Ten
Wage Structures Across Markets
Created by: Erica Morrill, M.Ed
Fanshawe College
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Chapter Focus
Why do wages vary across markets?
Are public sector workers overpaid?
Why are wages lower in some
provinces?
Are wages higher in large firms?
Which industries and occupations
provide the highest wages?
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Wage Structure Determinants
Occupation
Industry
Region
Large vs Small firms
Men vs Women
Race or ethnicity
Immigrant status
Union status
Public vs Private Sector
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Earnings Function
Individual (log) wages depend on
formal schooling
labour market work experience
unobserved ability or luck
Coefficients on schooling and
experience can be interpreted as rates
of return
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1999 Census
Pure regional wage differential
Occupational premiums
Industry premiums
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Theoretical Issues
Compensating differentials
Immobility across sectors
Short run vs Long run
Unobserved heterogeneity
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Occupational Wage Structures
The wage structure between various
occupations or occupation groups
23 two-digit major groups
16 occupational classifications
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Differential
Ss
Ds
Su
Du
Skilled Labour Unskilled labour
Ws
Wu
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Interoccupational Wage
Differentials
Compensation for
nonpecuniary differences
human capital investment
endowed skills
Short run adjustments
demand factors
Non Competitive Factors
occupational licensing, regulation on entry, unions and legislation on wages
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Regional Wage Structures
Reasons
geographic preferences
Compensating differences
cost of living, remoteness, climate, nonprice
externalities; pollution, congestion
Short run factors
induce mobility to encourage long run equilibrium
Noncompetitive factors
cost of moving, artificial barriers and public
policies
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Migration Decision
Geographic mobility will occur if
marginal benefit exceed marginal costs
Factors influencing mobility
Age
Unemployment rates
Business cycle
Distance
Cultural differences
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Interindustry Wage Differentials
Average industry wage reflects a variety
of factors
Occupational composition
Personal characteristics
Regional domination
Pure industry wage differentials are
difficult to calculate
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Interindustry Wage Differentials
Nonpecuniary aspects:
unpleasant or unsafe work conditions, seasonal or cyclical employment
Short run demand factors
reallocation, technology change,free trade and global competition
Noncompetitive factors
monopoly rents,wage laws,unions and licensing
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Wages
Firms may pay wages above market rate to
improve morale
reduce turnover
elicit effort
discourage unionization
establish queue of applicants
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Efficiency Wages
Productivity-enhancing wages
Payment of efficiency wages may differ
by industry
Voluntarily paid by the firm
Rationale for policies designed to
protect “good jobs”
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Interfirm Wage Differentials
Nonpecuniary factors
poor working conditions
Short run demand increases
Noncompetitive conditions
monopoly position in the product market
union in the labour market
pay efficiency wages
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Public vs Private Sector
Wage Differentials
Nonpecuniary
job security, fringe benefits and political
visibility
Short run factors
reflect a short run disequilibrium
Noncompetitive factors
political constraint, monopsony, inelastic
demand and unionization
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End of Chapter Ten