wage differential

Wage Differential

The difference in wage or salary between two employees of different classes who perform the same work. Examples of classes include age, gender, race, religion or even union and non-union membership. Wage differentials may be legal in some circumstances, but are generally illegal when based on gender, ethnicity, sexual orientation and similar classes.

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wage differential

see PAY DIFFERENTIAL.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

wage differential

the payment of a different WAGE RATE to different groups of workers. Wage differentials arise from three main factors:

1. differences in inter-occupational skills, training and responsibilities (surgeons are paid more than nurses, managers are paid more than labourers);
2. differences in inter-industry growth rates and PRODUCTIVITY levels (high-growth, high-productivity industries pay more than declining or low-productivity industries);
3. differences between regions in income per head and local employment levels (prosperous areas in general pay more than depressed areas).

Wage differentials that encourage greater labour MOBILITY between occupations and industries and promote high levels of productivity play an important part in bringing about a more effective use of labour resources. On the other hand, some wage differentials contribute to both economic and social distortions, in particular those that reflect racial or sexual discrimination and the exploitation of workers by powerful employers (‘sweat-shop‘labour). By the same token, ‘unjustified‘wage differentials arising out of the abuse of trade union monopoly power equally mitigate against the best use of labour resources.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005