8 Major Causes of Wage Differentials (With Examples)

Labour is a human factor of production and its all units are not identical because of differences in efficiency and productivity of labour.

causes of wage differentials
causes of wage differentials

There is a wide difference in the wages of workers and this variation differs from one occupation to another, one industry to another, one region to another and even from one country to another.

Causes of Wage Differentials

The causes of wage differentials are as follows:

1. Nature of Employment

Wage differentials may be on account of acceptance or non-acceptance of the employment.

People may accept a job with low remuneration with attractive working and living conditions while may not accept high Paid employment with bad living and working conditions and tiresome Jobs.

The nature of employment will affect wages.

Related: 37 Essential Qualities of a Successful Entrepreneur (Must Know).

2. Profitability of Success

Wage differentials are found with the profitability of success in employment.

Where the probability of success is uncertain, wages will be high while in case of an employee having risk and failures the wage rate will below.

3. Training and Education

A job with a low level of training and education will have low wage rates Higher Education and Training required high wages rates.

People generally accept the easy jobs rather than a difficult job despite the low wage rates.

4. Security and Stability of Employment

Secure and stable employment has low wage rates while temporary and seasonal employees will have High wage rate.

Related: 10 Objectives of Entrepreneurial Development Programmes.

5. Geographical Differences

Wage differentials are on the basis of geographical differences based on Industrial and occupational differences.

causes of wage differentials
causes of wage differentials


In cities, wage rates are high while rural labour is available at low wage rates.

6. Market Imperfection

Wage Differentials are also found on account of imperfect market competition in the factor market.

Inertia, family attachment, language, religion, caste are the factors by which labour has Limited mobility from one region to another.

From one occupation to another. from one industry to another. On account of it, wage differentials are found.

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7. Responsibility and Accountability of a Job

If a job presupposes responsibility and accountability the wage rate will be high while the wage rate will be low in those cases where responsibility and accountability are rare.

8. Strong and Organised Trade Union

Wage differentials are also found on account of the bargaining power of the trade union.

If the Trade union is well organized and strong the wage rates will be high in comparison to those organizations wherein the trade unions are weak and have weak bargaining power.

Thus, now you know the major causes of wage differentials in economics.

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