Wage Differentials | A-Level Economics Model Essay

In July 2017 it was announced that only a third of the BBC’s 96 top earning presenters were women and that its seven highest-paid presenters were all men. According to the High Pay Centre, in 2018, UK chief executives can earn 120 times more than the average full-time worker earning £28 758.

With reference to an industry of your choice, evaluate why wage differences exist within the UK labour market. 25 marks

Wage differentials are when different people earn different wages for having different skills or working in different industries. Wage differences can exist due to a number of reasons in a labour market, and a labour market is a place where workers and employers meet to exchange labour for wage. One example of an industry with many large differences in wages is football.

Female footballers may earn lower wages than male footballers. One of the reasons for this is differences in demand. Demand for labour is the number of workers that firms are willing and able to hire at any given wage. The factors that shift the demand curve for labour are the demand for the good, productivity, and the price of capital. Between male and female football, demand for the good varies a lot. For example, labour is a derived demand, and the demand for footballers is derived from the demand of football tickets, TV rights, and a winning team. The demand to watch mens football matches over history has been higher than that for female football matches, and the productivity can be measures in terms of how much revenue each footballer generates with shirt sales, and tickets sold. This is also generally higher in mens football, so the demand curve for mens football will be significantly higher, and as we can see on the diagram below on the right, this leads to a higher wage W1, compared to W0.

In evaluation, the reason for the differences in wage may not always be because of differences in productivity, but it could be because of differences in perceived productivity. This won't always be the case, but sometimes employers may guess that one group of people e.g. women may have lower skills and have a lower productivity and therefore they would have less demand for them, even though they didn't actually test if this is true.

Differences in wages may also be due to supply or due to elasticity. If we compare football players, to football medical staff, there would be large differences in wages despite both groups being quite important. Overall, the supply of footballers is very low and very inelastic, whereas the supply for medical staff would be higher and relatively elastic. If this was the case, the players would earn a much higher wage (W2) compared to the medical staff (W1).

Elasticity of the supply of labour is the percentage change in supply of labour given an initial change in wage rate. Supply for footballers is inelastic and this means that when wage goes up or down, the number of people willing and able to be a footballer doesn't change too much. If wages were lower, the vocational element of football would mean that footballers would still work, and if wages were higher, more people would want to work but not many more people would be willing and able to work as a footballer due to the unique level of skills required.

In evaluation, the vocational element of being a medical staff, especially in football, is also going to be high and it also requires many years of training, so therefore the wage differential may not need to be as high. However, it is the extent to which footballers have been training since they were a kid which is much greater compared to the years training in medicine or science.

In conclusion, there are many different reasons for wage differences in the football industry. Some of these may be considered as fair due to the nature of marginal revenue product theory and how demand varies based on productivity. Some of the wage differences may also stem from wage discrimination and incorrect perceptions of groups of labour. Wage discrimination should be resolved using strict regulation. And lastly, some of the wage differentials can be narrowed through education and training as well as trade union membership which encourages groups of workers to be motivated to upskill but then also to demand higher wages and better working conditions for their output.

Plan

• wage differentials
  • demand
  • supply
  • MRP