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Factors that affect labor supply
Several factors affect the labor supply as evident in the survey results. Reflectively, equilibrium and transitional wage differentials offer a valid explanation for the elicit labor differential persistence in the labor markets as part of the supply constraint. Reflectively, homogeneous jobs and perfect competition within the labor market are critical in the labor supply matrix.
Ideally, workers will have limited option apart from changing jobs until optimal satisfaction is achieved through the creation of a theoretical balance characterized by identical wage payment across same industry. In this process, the labor supply is disrupted. However, in reality labor wage rate variances are persistent in both empirical and casual rates despite the theoretical balance.
These variances are attributed to inconsistencies between casual and empirical wage rate reviews. Besides, nonwage factors, such as fringe benefits, job location, job status, wage advancement prospects, earnings regularity, and risk of death or injury in a job have substantial influence on supply decisions since they form part of wage differentials. Consequently, their intrinsic influence forms part of the overall wage differentials that are part of the generated labor supply effect.
Market information placement is presented as another vital determinant of labor supply. Market information influences the behavior of the labor market, its efficiency, and optimal operation. Thus, imperfect and costly market labor information is a major contributor towards persistent labor differentials at the micro and macro levels of the labor market.
Besides, when their effect is long term, then the outcome may assume the form of long-lasting differential wage imbalances that are transitioning from a period to another. Consequently, wage structure immobilities such as institutional, geographic, and institutional may last longer than usual. Reflectively, these immobilities are clear indicators of differences in wage rates within a similar industry for workers with the same educational level, skills, and experience as indicated in the survey results.
On the other hand, substitution and income effects also influence labor supply. In the process of changing occupation, the underlying decision science is the overall effect of the same on capital structure of a worker. Generally, the overall expected outcome is measured as a ratio of the total cost of investment on the relocation. For instance, transportation expenses, psychic costs, and forgone income during transition form part of the cost matrix in labor supply as indicated in the responses collected.
Existence of patterns of wage differentials in the sample
There is a consistent wage differential pattern in the sample. Specifically, this is as a result of mobility and their influence on labor market variables. The two major types of mobility are categorized as occupational geographical mobility. Reflectively, occupational mobility depends on labor units and the profession of the worker.
As a variation of the market labor mobility, efficiency in ‘allocative’ contributors is significant in balancing the distribution of labor units between low and high employment values as part of the wage differential matrix. Reflectively, the value of marginal product determines the regulatory effect on perfect competition and wage differential.
The two components will swing until the regulator balances for employments sharing self efficiency on ‘allocativeness’ as part of the wage differential. However, this interaction holds in a labor market with perfect knowledge of all determinant variables operating in a similar employment industry. Due to similar experience, skills, and educational attainment, the wage rates are likely to balance as the regulator moderates the two determining variables in a constant mobility parameter.
Despite the perfect regulation, several interacting externalities are identified as determinants of efficiency ease. As a result, these externalities are associated with minimization of gains realized on efficiency metrics. The worst case occurs when pecuniary externalities interaction with ‘allocative efficiency’ further minimize these gains.
In different labor markets, wage differentials generate a recurring capital and product flows that interact concurrently to initiate an equalized balance on wages in the long term. However, the wage differentials are inconsequential, especially at the macro level of the labor market as indicated in the table below for each age group.
Reasons for wage differentials
As noted in the survey, presence of unions offers solace to workers on bargaining for wages. Adopting efficient contract model, labor unions offer collective bargain opportunity for the two parties over employment level and wage rates. Since it is a flexible model, both the principal and the agent are given an opportunity to balance their offers before striking a compromise deal. For instance, the union can lower supply of labor, increase demand for labor and negotiate an equilibrium wage bargain for its members.
Skills and experience are as important as the nonwage factors on wage differentials. In the ideal scenario, when there is a decisive crisis involving the review of wages in a production line, a rational employer would opt for increasing wages paid to highly skilled workers an employee retention strategy.
The rate of wage increase will be higher for the highly skilled employers than what the low skilled counterparts eventually get as evidenced in the survey response. Efficiency of wage theories offers a better explanation of the above scenario.
These theories are based on the same notion that the higher turnover of labor units translates into higher wages paid, even though the ratio may not be proportional in perfect and imperfect labor markets. Besides, labor environments with limited quantifiable variables for reviewing performance are a recipe for high wages given to employees since the principal may not be in a position to measure efficiency of each labor unit against wage compensation.
As noted in the survey, heterogeneous workers are responsible for the continuous wage disparities for the group to compete on the nonwage aspects of work within varying stock capitals that are of human nature.
Consequently, the quantifiable result would be unbalanced labor preferences within differing market consistency on every unit of labor. This is explained by the hedonic theory of wages to classify this form of interaction between workers that have wage preference variances when interacted with ideal job amenities of nonwage nature.
The most likely effect would be the standard labor market’s inability to churn wage differentials that are sustainable for employees sharing similar capital stocks of human nature and counterparts with varying capital stocks of human nature. As a result, wage differential is skewed towards market demand. In summary, wage differences exist across employment due to job characteristics, such as compensating wage differentials, human capital, labor market discrimination, labor union, and incentive pay.
Summary of Findings
Theoretical Framework Justification
Human Capital Theory
Fringe benefits and wage earnings are identified as the main components of compensation summation. However, fringe benefits are apportioned a larger share in the total compensation matrix due to the fact that their influence was experiencing a consistent growth over the last decade in the labor market.
These fringe benefits are classified as social security, unemployment compensation and employee’s compensation for every unit of labor given as indicated in the human capital theory. For instance, the wage differentials for different age groups studied average at 5.
Since fringe benefits are rarely affected by age, the existing wage differential is negligible. In classification, these fringe benefits assume the form of insurance benefits, paid leave, and legally acquired benefits to a worker for every unit of labor delivered against the revenue realized. Besides these, retirement benefits and savings are included in the summation of the fringe benefits accrued by a worker.
Labor Market Discrimination Theory
Type and form of fringe benefits are never universal. Rather, they are influenced by the type of industry in which labor operates, ration and occupational groups as indicated in the labor market discrimination theory. This is due to the fact that governments and other agencies have introduced laws and regulations aimed at pushing for higher and reliable compensation.
In most instances, the blue collar employees have a larger share of the legalities, construed benefits than their counterparts in white collar jobs. As indicated in the survey, those in white collar employment earn more than those in blue collar. On average, the white collar employees earn $2500 as compared to the blue collar employees earning an average of $1000 per month.
Job Characteristics Theory
In a bid to extrapolate this relationship, the Job Characteristics/Compensating Wage Differentials theory is a certain reason for the experienced growth over the sample space. Reflectively, the variables interacting within the parameters of this theory are leisure and income within the normal indifference curve.
Consequently, the resulting interaction becomes flexible to different bundles of budget constraints that might be present at each level of computation. Further, this theory asserts that indifference curve is a product of various fringe benefits and wage rates that interact simultaneously to yield same utility level for each worker.
When all other factors are held constant, higher swing of the indifference curve indicates higher levels of utility. Irrespective of the inclination of the indifference curve, it is apparent that levels of tax advantage determine the resultant fringe benefit accrued as shown in the survey. Specifically, to support this notion, the benefits accrued from pension plans are taxable upon confirmation of receivership by an employee.
Besides, the principle, dividends and interest which are part of the summation of pensions, are best achieved through pretax accumulation of the fringe benefits as indicated in the survey. On average jobs that demand higher skills attract more wages than those that demand low skills. The highest paid participant is the post graduate worker in a power plant who earns $7000 per month.
Incentive pay theory
The need for intrinsic substitution as a component of the decision science aimed at managing the fringe benefits are peculiar in labor economics. In such case, the foregone alternative would be forfeiting leisure related savings for health and pension needs which are characterized as basic for every worker.
The adoption of this thought is influenced by the fact that basic needs are more critical than the secondary needs in the matrix of fringe benefits. Besides, the long term effects of purchasing the basic needs are greater than those of opting to acquire secondary needs upfront.
Tax advantages to employers, scale of economies, and efficiency are major factors that led to the growth of fringe benefits. Therefore, as fringe benefits increase, the workers’ utility increased in the same ratio. In drawing the curve, the initial assumptions consist in the fact that the market operates within a normal profit margin in total employment and product market as part of the overall compensation effect per worker. Generally, substantial changes for each cluster of wages and benefits are negligible within the ‘employer’s isoprofit curve’.
The same relationship functions in the Wage-Fringe optimum. As performance and pay interact in the labor market, there is a proportional relationship between performance and pay for each unit of labor given to a firm (principal) against the compensation offered as explained in the incentive pay theory. As indicated in the sample, those in marketing and technical fields earn more incentive than those in normal fields.
The unbalance relationship between pay and performance may result in the principal – agent problem which might culminate in under utilization of labor units since the agent (employee) may opt to increase leisure through reduced efforts at work.
In order to avoid this unwanted scenario, the theory proposes different forms of incentive compensation such as tournament pay, royalties, profits, and bonus plans. In most cases, employers control these incentives and limit them as a fraction of the total revenue after factoring the cost of production and each labor unit.
When implementing these incentive plans, it is important to concentrate on personal performance bonuses as opposed to team bonuses, which promote a joyride attitude among workers since the process has no specific measure for distributing incentives. The firm can also opt for equity compensation under which employees are encouraged to take ownership of the firm in the form of stocks as supported by the incentive pay theory.
Labor Union
When implanting compensation plans, it is important for the firm to consider the efficiency of each labor unit against the wage payments. These units should be quantified in line with performance targets and revenue accrued. In order to achieve this, introduction of regulatory agents, such as supervisors who work alongside the employees may be beneficial. As a result, the fractional reduction of labor cost per unit of the budget of an employer is referred to as the resultant wage efficiency metrics.
This matrix is dependent on homogeneous labor inputs wages at market-clearing parameters and external forces like labor unions. As explained in the labor union theory, this agent often influence wage prices to be very sticky downwards. In the sample, the unionized employees reported stable income and structured employment contracts as pull factors into their respective fields.
Conclusion
In a perfectly skewed labor market, wages are supposed to be determined by the cost of production and total output. Transitional and equilibrium wage differentials explain the persistence of eliciting labor differential. It is apparent that homogeneous jobs attract perfect competition in the labor markets.
Therefore, workers would change jobs until a theoretical balance is created to make wages paid across identical. Interestingly, in comparing the casual and empirical wage rates, labor theories adopt an assumption that different wage rates exist and are generally persistent despite equilibrium due to factors such as the variances between empirical examination and casual review of wage rates.
As identified in the survey results, nonwage factors such as fringe benefits, job location, job status, wage advancement prospects, earnings regularity, and risk of death or injury in a job have a substantial influence on supply decisions since they form part of wage differentials. As a result, their influence consists in determining the rate of wage differentials for generating the overall effect on the labor supply.
The effects of market information on wage differentials are indicated as either positive or negative in the survey results. Reflectively, costly and imperfect market information is largely responsible for the existence of persistent wage differentials in labor market.
In an ideal labor market, these imperfections and cost burdening information is a ladder towards the extreme wage rate ranges since their operation in the market is independent on the normal wage differentials. When their effect lasts longer than usual, the effect would translate into long-lasting wage differentials of a transitional nature.
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