Draft:Wage differential
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This Draft page is included in the peer-assessment pool for IPMProject1 (2009-2010). Student assessors should post their feedback on the discussion-tab of this page, explicitly referring to the IPM wiki page criteria. IJsbrand Hoetjes 15:44, 19 October 2009 (CEST) |
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Definition/short description
A wage differential is the gap between wage rates of the same job that can occur because of a variety of circumstances.
In depth
Wage differential can have multiple meanings, generally it refers to a gap in wage rates (for similar jobs) that can occur because of:
- Different location of company
- In two distinct countries
- Within the same country;
- Hours of work;
- Workers skills;
- Gender and ethnic discrimination.
Following the purposes of this project, I will take in consideration the wages gap that happens due to the different geographical position of two workers performing the same job. Bound to this topic are indeed important topics related to migration.
How are wage differentials obtained?
To calculate wage differential several models and variables are used.
Model for Wage Differentials between two countries
The empirical literature in labor economics abounds with regression estimates of wage differentials by:
- Region
- City size
- race
- gender
- schooling
- industry
Wages will differ also because of area amenities, fiscal conditions and price of good and services vary across cities. Estimation of real wage differentials among workers and across labor markets has been limited for at least four reasons: 1) microdata sets often identify a small number of local areas or have small sample sizes within each market; 2) cost of living data across labor markets are not readily available; 3) area amenities are difficult to measure and incomplete at best; 4) and interarea price indices do not accurately reflect "true" cost of living.
Model for interregional wage differentials
To determ wages, economists use two approaches: the analysis of variance (ANOVA)and the regression of log earnings equations. In both these analyses are used specific variables:
- Sex
- Occupation
- Age
- Education
- Firm size
The relevance of Wage Differential for Migration and Policies
Wage differential's effect on Migration
One of the most commonly known theoretical concepts in migration research is the so-called push-pull model. This model refers to a number of negative or push factors in the country of origin that cause people to move away, in combination with several positive or pull factors that attract migrants to the receiving country. Wage differentials, caused by differences in the ratio of labour to capital, is one of these push-pull factors.
Migrations mainly take place because of geographical differences in demand and supply on labour market. Wage differentials, indeed, induce workers from low-wage countries to migrate to countries with higher wages, seeking to maximise individual incomes. In response to the migration flow, the wages in the high-wage region will fall, while the wages in the low-wage region will rise. The migration flow will end as soon as the wage differential between the two regions reflects the costs of movement from the low wage to the high wage region.
It is important to observe, however, that in some cases the flow is caused exclusively by expected rather than actual earning differentials.
Wage differential's relevance on Policies
The impact of immigration, caused also by wage differential, on labour market remains an important policy concern. Policies implemented on this issue deal with important topics, such as labour flexibility, unemployment and social integration. The evidence does suggest that, consequently to migrants flows, some disadvantaged groups may experience wage stagnation as a result of low-skilled immigration. The public remains concerned about the impact on low-skilled natives, potentially indicating a more general fear about the ability of the low skilled to compete in a globalising world, exclusive or social or cultural concerns. Althought this aspects, immigration may have beneficial effects on host economist.
Policies aimed at workers: policy needs to address the problems that the lowest-skilled workers face in trying to compete in the labout market. In the UK, active labour market policies to help low-wage and out-of-work individuals are already quite developed. Furthers initiatives to enable low skilled workers to access trainin are also being produced. That said there is an argument for refocusing some aspects of these policies to meet the needs of immigrant-competing workers, for example by considering how training can prepare natives for jobs such as those requiring strong language and communication skills, in which immigrants compete less effectively.
Policies aimed at firms: in different countries policymakers provided better data and forecasting of immigrant flows to allow firms to increase work demand in order to increase supply of lower-skilled workers.
Policies aimed at communities: The UK government is currently working on a programme to improe statistics on immigrant flows, including population estimates and projetions at the local level. This will be essential to the successful targeting of funding.There are important community-building and diversity awareness strategies and projects that can deliver real outcomes on the ground. Among the numerous examples is the Croeso project in Wales.
For further information, see also Immigration and the labour market
Examples
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Sources, further reading, links
- Definition of wage differential
- "A Critique of the Global Wage System" By Gernot Köhler
- "Immigration policy in the European Union" by Petra Bendel
- "Immigration and the labour market" by Will Somerville & Madeleine Sumption
- "The labout market effects of immigration" by Christian Dustmann
- Steven A.Camarota, The wages of Immigration, Center for Immigration Studies, 1998, ISBN 1-881290-09-3
- Rob van der Erf & Liesbeth Heering, Causes of international migration, Netherlands Interdisciplinary Demographic Institute (NIDI) on behalf of the European commission, 1994.
