Economics Study Set 20
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.
(a) A lawyer generally undertake strenuous and nerve wrecking work in comparison to minister whose work is not so strenuous and nerve wrecking. This difference in nature of work undertaken by the two is the major source of earning differences between the two. (b) An accountant and an elementary school teacher have different educational qualification and skill set. This difference in educational qualification and skill set accounts for the earning differences between the two. (c) A business executive and a social worker have earning differences owing to worker preferences. Business executive has more inclination towards making money and thus put more time in work that can bring in more money. On the other hand, social worker is more interested in serving society than making money and hence put more time in work that give him chance to serve society rather than making money. (d) A country lawyer and a Wall Street lawyer have earning differences owing to cost of living differences between two regions. Countryside is less expensive than the New York (where Wall Street is located). Put another way, a given quantity of money can purchase more goods and services in countryside than in New York. This difference in cost of living is generally reflected in nominal earnings in two respective areas for given occupation. (e) The earning differences between the two is due to the fact that productivity of experienced and skilled craftsman is much higher than a 20-year old high school dropout. Thus, owing to differences in work productivity and skill set earning differences between the two exist. (f) Working conditions is the major source of earning differences between the two. Working conditions for an upper storey window washer is less attractive as well as risky in comparison to working conditions for ground-floor window washer. So, higher risk or danger means wages would be higher for upper storey window washer than ground-floor window washer.