Wage Differentials (Cambridge (CIE) O Level Economics)

Revision Note

Written by: Steve Vorster, Economics & Business Subject Lead

Reviewed by: Jenna Quinn, Head of New Subjects

Reasons for Differences in Pay

Workers are paid different amounts (wage differentials) due to a number of factors, including
- Gender pay differences
- Industrial sector pay differences
- Private and public sector pay differences
- Differences in pay between skilled and unskilled worker

Reasons for wage differentials between men and women

Men usually work full-time whereas women often work part-time in order to meet the demands of motherhood/childcare
Men usually have an uninterrupted career journey whereas women often take time away from work (motherhood/family) and so miss opportunities for advancement
Women are more likely to accept a job below their skill or quantification level if it fits in with the needs of looking after their children
The gender pay gap is a form of discrimination and occurs when a women is paid less than a man who is doing exactly the same job

Reasons for wage differentials in the primary, secondary and tertiary sectors

Primary sector workers are usually paid low wages due to the unskilled nature of the job and the fact that raw materials often generate the lowest profits in the production chain
Secondary sector workers add value to the raw materials and these products sell for higher profits. Therefore wages tend to be higher than primary sector wages
Tertiary sector workers are paid the highest. Their jobs often require highly valued skills that take years to acquire and the products they sell or services they provide can be complex and expensive e.g. artificial intelligence coders

Reasons for wage differentials between private and public sector workers

Public sector organisations are owned and controlled by the Government
Private sector organisations are owned and controlled by private individuals and firms

Reasons for Wage Differentials Between Private and Public Sector Workers

Private Sector Workers	Public Sector Workers
Salaries can be extremely high, especially if the value of goods or services offered is high and the workers are productive Some salaries can also be very low as firms seek to cut costs and maximise profits e.g. garment sector worker in Bangladesh get paid very little for the work they do Many wage benefits tend to be better than those provided by the public sector e.g. bonuses or share options	Wages will reach a maximum ceiling that is often below what the private sector may offer e.g. public school teachers are paid less than private school teachers Wages often do not fall as low as some private sector jobs as many public sector workers belong to trade unions Job security is high resulting in long careers with defined pathways for promotion Pensions are often very good, but are limited in comparison to private sector pensions

Private Sector Workers

Public Sector Workers

Salaries can be extremely high, especially if the value of goods or services offered is high and the workers are productive
Some salaries can also be very low as firms seek to cut costs and maximise profits e.g. garment sector worker in Bangladesh get paid very little for the work they do
Many wage benefits tend to be better than those provided by the public sector e.g. bonuses or share options

Wages will reach a maximum ceiling that is often below what the private sector may offer e.g. public school teachers are paid less than private school teachers
Wages often do not fall as low as some private sector jobs as many public sector workers belong to trade unions
Job security is high resulting in long careers with defined pathways for promotion
Pensions are often very good, but are limited in comparison to private sector pensions

Reasons for wage differentials between skilled and unskilled workers

Many economies have a high supply of unskilled labour. This means that employers can push wages down as there is always someone willing to work for less (take it or leave it approach to wages)
To become skilled takes time and money which means that there is a more limited supply of specific skillsets. In recognition of these factors, wages for skilled workers are higher

Examiner Tip

This topic is often examined in Paper 2 structured questions. A favourite approach is to ask a 'discuss' question which focusses on one area, but requires you to have knowledge of the other areas in order to fully answer the question.

For example: Discuss whether younger workers are always paid less than older workers

Often they are because they are less skilled, lack experience etc.
On the other hand, young workers may be highly trained in new technologies which are driving growth in the tertiary sector and they will be highly paid

Remember to let the infromation in your case study lead the points that you are making in your argument

Last updated: 24 June 2024

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