Wage Differentials – Types and Implications

If we take various contingent factors into account, we find that there may  be differences in wage and salary structures. These differentials may be  industrial and occupational, regional, organisational and personal.

  1. Industrial and Occupational Differentials :  Industrial and occupational differentials exist because of requirement of  different skill set and imbalance in demand and supply of personnel having such  skills. Wages and salaries are usually fixed on the basis of skills required to  perform a job. Thus, highly specialized jobs requiring higher level of skills are  linked with higher pay too. Coupled with this, shortage of supply of such  personnel also induces the payment of higher pay.
  2. Regional Differentials :  Apart from industrial arid occupational differentials,  there may be differences in wages and salaries region-wise also within the same  industry and occupation group. Such differences are visible in different  countries of the world as well as different regions within a country. Such  differences exist because of the differences in cost of living pace of industrial  development and lack of adequate mobility of personnel from one region to  another. For example, wages and salaries are higher in metropolitan cities as  compared to other cities; higher in cities as compared to rural areas.
  3. Organisational Differentials :  Different organisations falling in the same industry group and at the  same location offer different wages and salaries to individuals having similar  background. The main reasons for organisational differentials are organisations  policy to recruit specific types of personnel and their capacity to pay. For  example, most of the multinational organisations operating in India offer much  higher salaries to their employees as compared to their counterparts of Indian  origin. Similarly, larger organisations offer much higher salaries as compared to  smaller organisations.
  4. Personal Differentials :  Wage and salary differentials exist at personal level too. Different  persons having similar qualifications are offered different salaries in the same  organisations. This happens because they have acquired different skills in spite  of the fact that they may have similar educational background. This happens  more so when skill-based pay system is adopted as against job based pay.

Implications of Wage Differentials

Wage differentials have a number of implications both at macro  and micro levels.

At the macro level, these differentials determine the allocation  of human resources and non-human resources. This allocation determines the  growth pattern in the economic system. When a particular industry or  occupation offers higher wages and salaries, the economic resources are geared  to develop such personnel. For example, in India, educational activities have  increased in the areas of management and information technology because these  areas offer higher salaries and better job opportunities.

At the micro level, wage differentials show that some  organisations use proactive strategy to attract better talents as compared to  others. They become trend-setters rather than play the role of followers. These  trend-setters set pattern not only in relation to recruitment of better personnel but  in terms of other human resource management practices too.

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