8.3.9—Wage differentials

A wage differential is a difference in pay between workers or occupations. It can reflect marginal productivity, education and training, scarcity, risk, working conditions, discrimination, bargaining power and institutional rules.

Compare jobs on the same basis: a higher wage may compensate for unpleasant risk, require scarce qualifications or reflect a union. Observed pay can also diverge from productivity because information and discrimination distort the market.

A hazardous offshore job may pay more partly as a compensating differential; a shortage of specialist engineers can raise pay through scarcity even when working conditions are attractive.

A high wage is not proof that a job creates more social value, and a low wage is not proof of low productivity.