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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