pay differential

pay differential

the difference between the WAGE RATES of different groups of workers. Pay differentials arise for a number of reasons:

1. differences in skills, training and responsibilities between occupations (for example, doctors are paid more than nurses, managers more than factory operatives);
2. differences in growth rates and PRODUCTIVITY levels between firms and industries, with high-growth, high-productivity firms and industries paying more;
3. differences in regional employment levels reflecting differences in the supply and demand for labour in particular localities, with pay in prosperous areas generally being higher than pay in depressed areas.

Pay differentials serve to encourage LABOUR MOBILITY between occupations, industries and regions, facilitating the movement of workers into sectors of the economy where they can be more efficiently employed.

Maintenance of differentials is believed to foster poor INDUSTRIAL RELATIONS and encourage inflationary wage spirals; as one group wins a pay increase so another seeks a similar one to maintain the differential. See COLLECTIVE BARGAINING, COMPARABILITY, INFLATION.