Economics Study Set 18
Quiz 26 :
Earnings, Productivity, and the Job Market
Wages depend on the skill and experience of the person. If a person is more skilled and has more experience, then his wages would be more as compared to others. Apart from this, wages also depend on market demand of that profession. For example wages in the entertainment industry are way too high as compared to wages in the health or IT sector. This is because there is a huge demand for high skilled entertainers which translates into high wages being paid to people in the entertainment industry. Wage differentials effect the allocation of resources as industries or markets with higher wages attract more resources and thus produce efficient outcomes. Low wage markets experience a shortage in supply of resources and thus production is inefficient.
Skills, education and technical availability in US is much more advanced as compared to other countries which makes the workers in US more productive and thus helps them in earning more wages than others. Since US invests a lot more in its human capital, the returns from them is very high and thus they are paid more.
There are different factors that affect the salaries in different professions. The main difference arises due to the skills the person possesses and the work they carry and what revenue they add to their particular organization. a) Here if we talk of a lawyer and minister, their salary mainly depends on the responsibility of work which these professions possess. Since a minister is more powerful in responsibilities than lawyer and has to carry a lot of activities which includes taking care of his/her ministry and its related affairs, it leads to a difference between the wages of the two. b) Wage differential between an accountant and an elementary school teacher is due to the skill set possessed by the person. An accountant is more skilled in terms of technical knowledge and requires a higher level of education while an elementary school teacher is more skilled with conceptual knowledge and does not require technical know-how of the work. This difference leads to difference in the wages of the two. c) A business executive and a social worker can be differentiated on the basis of the work which they do and the revenue they create for the business. A business executive works for an organization and helps it to earn revenues whereas a social worker works for the betterment of the society and not profits. This makes the wages of business executives more than social workers. d) A Country lawyer and Wall Street lawyer can be differentiated on the basis of responsibilities they carry. Wall Street lawyers hold more responsibility than Country lawyers and are also expected to come from better off colleges and thus expected to be more skilled. This makes them more paid than the country lawyers. e) Similarly for an experienced skilled craftsperson and a twenty year old high school dropout, there exist differences in the skills, experience and educational requirements. This makes the experienced skilled craftsperson better paid than a high school dropout. f) Since the risk of death involved is more for an upper-story window washer as compared to a ground-floor window washer, he is paid more to compensate for the risk.