The following wage differentials are observed in the US today. Explain (I) why e

Question

The following wage differentials are observed in the US today. Explain (I) why each of these differentials persists, and (2) whether or not it is consistent with the competitive model of wage determination.

a. Among workers with no more than a high school education working in the same plant, 35-year-olds receive higher wages than 25-year-olds.

b. Workers in the South receive lower wages than their counterparts in the Northeast.

c. African-American workers receive, on average, lower wages than Caucasian Americans.

d. Workers whose jobs involve the direction and management of others must typically be paid more than their subordinates, even if training and educational pre-requisites are the same for both.

e. Wages for union members are higher than those for non-union workers, in the same occupation

Explanation / Answer

a.

Among workers with no more than a high school education working in the same plant, 35-year-olds receive higher wages than 25-year-olds.

This happens because of experience, which is a signal of high and better skills in the individual

b.

Workers in the South receive lower wages than their counterparts in the Northeast.

This happens because the standard of living is high in North, as compared to South

c.

African-American workers receive, on average, lower wages than Caucasian Americans.

This happens because of racial discrimination, relating the blacks with low wages

d.

Workers whose jobs involve the direction and management of others must typically be paid more than their subordinates, even if training and educational pre-requisites are the same for both.

This happens because those at higher positions are assumed to be possessing higher skills, which makes them get paid higher

e.

Wages for union members are higher than those for non-union workers, in the same occupation

This is because unions hold a strong position in the firm and not adhering to their demands will lead to strikes and non-compliance of work by the union members, which will make it difficult for the firm

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