Question

(TCO G) Two industries (Industry X and Industry Y) are run by labor unions. Even though the unions overseeing these industries are considered honest and conscientious, we have seen a large disparity in pay between the industries. In fact, the wages in Industry X are now three times the rate as those of Industry Y. What factors account for the differences in these two industries?

Answer 1

Possible factors which could account for differences in these two industries:

Regional differences

Geographies where the industries are located play a crucial role in wage determination despite similar occupations of the workers across industries. Sometimes premium or additional remunerations are provided to workers for taking up a job in remote areas or less preferred areas.

Job/Skill differences

Same jobs across different industries need different skill sets and level of responsibility. This is purely contextual. A more challenging or demanding job would definitely warrant a better pay package. This skill requirement further results in employee training and development resulting in improving their productivity which again translates into better wages. Also experienced workers/labors would be paid a better wage so even that needs to be taken into consideration.

Industry differences

Differences in technological advancement, financial capital, managerial decision making, firm’s age and size, availability of raw material, power and transport facilities also account for differences in wages across industries.

External/Internal factors factors

The economic condition of the market, the demand supply, the lifecycle stage of the product manufactured in the industry, legal and political aspects and availability of skilled labors; all impact the wages.