Question

how are wage differences usually explained in the labor market

how are wage differences usually explained in the labor market

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Answer #1

Wage differences are explained in the labor market in different ways. The first way is compensating wage differentials where the higher wage is paid to those who work in the relatively difficult work environment. It creates wage differences in comparison to those who get lower wage and work in a comfortable environment. The second way is the skill level. A person with higher skills is paid higher wages in comparison to those who own moderate or lower skills. The third way is the difference in natural abilities that causes the different people to get different wages. Further, shortage or surplus of workers in different industries in the labor market also explains the wage differences.

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