Economics and Society Introduction: The given figure depicts the median annual salary of seven different job positions in United Kingdom in The median salary of office administrator is £ 15100. The median salary of retail store manager is about £ 22000. The median annual salary of the position of Project Manager, IT is around £ 40,000. That of senior software designer is £ 37000. The median annual salary of personal assistant is 23000. The median annual salary of General/ operations manager is £ 35000 and that of graphic designer is £ 19000. 2.
Main body: Wage Differentials: The differences in median annual salary represent the wage differentials which is an economic reality. There are many different economic theories that try to explain the reasons behind these wage differentials. The wage differentials can be explained by the differences in jobs, differences in people, or imperfect competition in labor markets. Wage differentials sometimes serve to compensate for the qualitative differences among the requirements of different jobs (R. , and, P., Himmelweit, S., Mackintosh, M., Santos, C., and Stone, H., Brown, W. 200) For instance the job of Project Manager, IT might have required people with higher educational qualifications than the job of office administrator.
This partially explains the wage differential between the median annual salary of an IT Project Manager (GBP 40000) and the median annual salary of an office administrator (GBP 15100). The wage differentials due to educational qualifications are empirically supported by the evidence on wage differentials between college graduates and high school graduates. This wage differential has increased over the years in major developed economies of the world, including United Kingdom. A recent study shows that an 18 year old male who graduates from college will earn about $ 2.5 million before the age of 65.
A member of the same generation who graduates from only high school will earn only about $ 1.3 million. And a member of the same generation who does not finish high school will earn an average of only $ . 8 million ( Paul Samuelson, William Nordhaus, 231). Another reason for the wage differential lies in the demand and supply gap for the different job positions. For instance, the position of senior software designer earns a higher median annual salary than the graphic designer, maybe because the demand for the position of senior software designer may be greater than the demand for a graphic designer.
Or the supply of graphic designers may be too high in relation to the demand for them. It is to be noted that the labor market is not a perfectly competitive one. Even if it was a perfectly competitive where people could move easily from one occupation to other, substantial wage differentials would have still occurred (R. , and, P., Himmelweit, S., Mackintosh, M., Santos, C., and Stone, H., Brown, W 195). These wage differentials in perfectly competitive labor markets would have reflected the differences in costs of education and training or in the unattractiveness of certain occupations or to indicate rewards for unique talents. Segmentation of the labor markets Another reason for the wage differentials is that labor markets are segmented into noncompeting groups (Garry Slater 44).
For instance office administrator, retail store manager and Project Manager, IT represent three different noncompeting groups. This is because it is difficult and costly for the member of one profession (say office administrator) to enter another profession (say retail store manager or Project Manager, IT).
The existence of these noncompeting groups or submarkets in the labor market also explains why wages may differ greatly among the different groups (R. , and, P., Himmelweit, S., Mackintosh, M., Santos, C., and Stone, H., Brown, W 221). The labor market is divided or segmented into so many noncompeting groups because for skilled jobs and professions a large amount of time, energy and resources are required to be invested for acquiring proficiency. Once people specialize in a particular occupation or job they become part of a particular segment or sector of the labor market.
Now it becomes extremely difficult for them to switch professions overnight (Garry Slater 45). For instance, the office administrator (who is earning the lowest median annual salary) cannot become Project Manager, IT or Senior Software engineer (who are earning much higher median annual salaries). The members of the different non-competing groups or segment are therefore subject to the supply and demand for their own particular job or skill.
The earnings or the average annual salary of a particular noncompeting group is dependent upon the events that affect their occupation or industry( Paul Samuelson, William Nordhaus 286). Because of this segmentation, the wages for one occupation can diverge substantially from the wages in other areas. This partially explains why the median annual salary of the retail store manager diverges so much from the median annual salary of the IT manager. In the long run the wage differentials tend to narrow down because of entry into jobs with higher average salary and exit from jobs with lower average salary (Garry Slater 47).
For instance, in the long run more young people will study Information technology and software (because of higher median salary there) than go and become office administrators or graphic designers. As a result of this in the long run the wage differentials between the two non-competing groups (office administrators and IT professionals) will tend to narrow down. The differences in the median annual salary of the different groups in UK in 2010 can also be partially explained by demand conditions of the different sectors.
For, instance the IT and software median annual salaries were also higher in 2010 because of better demand conditions for skilled labor in IT and software sector in United Kingdom. Another economic theory behind wage differentials is that of unions and their collective bargaining power. The collective bargaining power of the unions means that the unionized workers have higher wages and economic benefits than non-unionized workers (Garry Slater 48). However, because of the decline in unionism in United Kingdom and in the rest of the world, unionism as one of the major causes of wage differentials has lost much of its influence.
In this case, this economy theory also does not hold because the segmented noncompeting groups mentioned in this case ( office administrator, retail store manager, Project manager IT, software engineer, personal assistant, office manager, graphics designer) are those that are mostly non-unionized. The economic theory of wage differentials due to various discriminations in the labor market also does not hold in this case. When economic differences arise because of irrelevant personal characteristics such as race, gender, sexual orientation or religion, it is known as discrimination in the labor market. Discrimination, as an economic theory for wage differentials, does not explain the differences in median annual salaries in this case because the differences are given according to the different non-competing groups and not according to differences in salaries among the constituents or members of the different groups. 3.
Summary: Therefore, the differences in the median annual salaries of the noncompeting groups given in this case can at best be explained by three economic theories. These are: the wage differential due to segmentation of the labor market into different noncompeting groups or submarkets; the wage differential due to different skills and educational qualifications required for the different jobs; and the wage differential due to the different demand conditions for the different jobs. Labor markets are far from being perfectly competitive.
The differences due to personal attributes like training, qualifications and intelligence; the barriers to entry to switching over to a noncompeting segment; and the stickiness in wages take it far from being a perfectly competitive one (Garry Slater 50). The differences in the median annual salary of the different job groups in UK in 2010 are one implication of this imperfect nature of the labor market in UK and elsewhere in the world.
References: Garry Slater, Wage determination, discrimination and segmentation in labor markets, United Kingdom: British Journal of Industrial relation, 2005 (pg 44-60). R., and, P., Himmelweit, S., Mackintosh, M., Santos, C., and Stone, H., Brown, W., (eds), Doing Economics: People, Markets and Policy, Milton Keynes, United Kingdom: The Open University, 2009 (pp. 188-250). Paul Samuelson, William Nordhaus, Economics, New York: Prentice Hall, 2000.