The wage paid to workers varies greatly. These wage differentials are mostly the result of differences in worker ability and the workers' effort in performing the job.

1. Occupational Wage Differentials
Compensation Management

2. Prepared By
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Manu Melwin Joy
Assistant Professor
Ilahia School of Management Studies
Kerala, India.
Phone – 9744551114
Mail – manu_melwinjoy@yahoo.com

3. Wage differentials
• The wage paid to workers
varies greatly. These wage
differentials are mostly the
result of differences in
worker ability and the
workers' effort in performing
the job.

4. Wage differentials
• There are also wage
differentials across
occupations, because of
differences in the demand
and supply of laborers for
particular job or occupation.
These differences arise
primarily because of
differences in the amount of
education or training
required and in the
desirability of the job itself.

5. Occupational Wage Differentials
• Obviously, certain
occupations pay more than
others. Surgeons make more
than teachers, who make
more than retail
salespeople. Most of these
wage differentials are the
result of educational and
training requirements, what
is often referred to as
human capital.

6. Occupational Wage Differentials
• Surgeons require more
than a decade of
education and training
after high school before
they can earn a living as
surgeons, while retail
salespeople can get a job
right of the high school,
or even while they are
still in school.

7. Occupational Wage Differentials
• Education and training limit the
supply of labor in that they take a
certain amount of time to
complete and require a certain
level of skill. In many cases,
people who attend college or
training school do not have the
time to work a full-time job.
Therefore, they also incur an
opportunity cost which is equal
to the amount of money that
they could have earned had it not
been for the educational or
training requirement.

8. Occupational Wage Differentials
• Another primary factor that
determines wages is the
demand for the worker,
which is a derived demand
for the product or service
that the worker provides. If
the worker provides a
product or service that is
highly desirable, then a
higher wage will prevail for a
given supply of workers who
could do that job.

9. Occupational Wage Differentials
• Sometimes, ability makes a
very large difference in wage
potential that far outweighs
the differences in ability. The
winning horse earns a lot more
than the one that comes in
2nd even though it is only a
little faster. There are only so
many jobs for professional
athletes, so only the very best
are going to be chosen for
those high-paying jobs.

10. Occupational Wage Differentials
• Likewise, only the best
musicians or those
producing the most
desirable music will become
wealthy. People only have so
much time and money for
entertainment, so they tend
to select entertainment
performed by the best
people, especially
entertainment package for
mass consumption.