family4 wages
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Why do similar jobs pay different wages?
Why do similar workers receive different salaries?
Average Annual Wages in Selected Occupations, 2007
DentistsLawyersPetroleum EngineersFinancial ManagersEconomistsComputer programmersRegistered NursesPolice OfficersElem. School Teachers Social workersBarbers, hairdressersConstruction workersCashiersFast Food Cooks
$147,000118,000114,000106,00086,700 72,00062,48050,67050,000 47,00026,00033,80018,40017,000
Source: Bureau of Labor Statistics, 2007
Occupation Annual Average Wages
Highest Paid CEOs, 2005
Name Company
Total Pay (millions)
Richard Fairbank Capital One Financial $249.4
Terry Semel Yahoo 230.6
Henry Silverman Cendant 140.0
Bruce Karatz KB Home 135.5
Richard Fuld, Jr. Lehman Brothers 122.7
Ray Irani Occidental Petroleum 80.7
Lawrence Ellison Oracle 75.3
John Thompson Symantec 71.8
Edwin Crawford Caremark Rx 69.7
Angelo Mozilo Countrywide Financial 69.0
Hourly Earnings By Occupation, 2006
Occupational Group Hourly Wage
Management, Business, And Financial $29.09
Installation, Maintenance, And Repair 18.68
Sales Workers 17.12
Office and Administrative Support 14.83
Service Workers 11.84
Farming, Fishing, And Forestry 9.85
• Human Capital: Skills, education, experienceProduced by:• 1) Families (investments of time, money, resources) • 2) Education gained in schools (K – 12 and college)• 3) Skills acquired while working, on-the-job training• Human capital theory:
– More schooling improves productivity– Lower quit and absentee rates– Less likely to abuse drugs and alcohol
• Differences in time preferences– presented-oriented people acquire less education
• not willing to sacrifice present consumption without a large increase in future income, discount future income
– future-oriented people acquire more education• willing to sacrifice present consumption for a small increase in
future income, value future income
Wage Differentials: Workers are different
• Non-competing skillsDoctors and computer programmers don’t compete in the same labor market
• Compensating wage differentials = extra pay that an employer must provide a worker for some undesirable job characteristic that does not exist in alternative employment
– Higher risk of injury or death– Lower job status/prestige– Job location
• in cities with lower amenities • In cities with greater cost of living• To attract workers with longer commute
– Less job security• Private sector vs government
– Prospect of wage advancement• Jobs with greater wage advancement have lower starting wages
– Flexible hours
Wage Differentials: Jobs are different
• Firm size– Large firms pay higher wages than small firms because
• More likely to be unionized• Workers more productive? better training, capital
• Higher wages to prevent turnover– Firms will pay above-market wages when hiring and training costs
are high.• Costly to monitor shirking
– Firms will pay above-market wages where it is costly to monitor employee performance or the employer’s cost of poor performance is high.
• Costly job search – Information is costly - time
• Geographic immobilties– Costs of moving deters migration to areas with higher wages
• Worker’s tastes for nonwage aspects of jobs– job security, location, commute, risk, co-workers– Women prefer shorter commute? May accept lower wages
Wage Differential: Other Explanations
Fringe Benefits as a Proportion of Compensation
70%
8%
7%
8%4% 3%
Wage andSalaries
Legally RequiredBenefits
Paid Leave
Insurance
Retirement
Supplemental Pay
Relative Growth of Fringe Benefits
0
5
10
15
20
25
30
Fringe Benefits as a Percent of Compensation
1929 1955 1965 1975 1986 1995 2000 2006
Physical appearance
• Hamermesh & Biddle (1994)– penalty & premium for appearance
• actually larger for men
– “plain” earn 5-10% less– “beautiful earn 5% premium
• Averett & Korenman (1996)– NLSY & impact of obesity– women have 15% penalty
• lower penalty for men• lower penalty for Black women vs. White women
Ratio of Female to Male Hourly Earnings
0%10%20%30%40%50%60%70%80%90%
1973 1978 1984 1989 1994 1999 2004
Fem
ale-
Mal
e E
arni
ngs R
atio
Ratio
Wage gap decreased because
1. skills of women have risen
2. occupational distributions have shifted in favor of women
3. decline in unionism has decreased male wages relative to female wages
4. discrimination has declined
Ratio of African-American to White Weekly Earnings
0%
20%
40%
60%
80%
100%
1973 1978 1984 1989 1994 1999 2004
Bla
ck-W
hite
Ear
ning
s R
atio
Ratio
Occupational Distribution by Gender, 2006
0 20 40 60 80 100
Percent Female
Secretaries
Registered Nurses
Elementary School Teachers
Waiters and Waitressess
Laundry Workers
Physicians and Surgeons
Janitors and Cleaners
Dentists
Taxicab Drivers
Construction Managers
• Women are 47% of the employed labor force
Occupational Distribution by Race, 2006
0 5 10 15 20 25 30 35
Percent African-American
Nursing Aides and Orderlies
Taxicab Drivers
Janitors and Cleaners
Typists
Laundry and Dry Cleaners
Registered Nurses
Elementary School Teachers
Waiters and Waitresses
Physicians and Surgeons
Construction Managers
• African-Americans are 11% of employed labor force