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Interindustry Wage Differentials

The difference in labor value across various industries has attracted the attention of economists for a long time. In this regard, the classic view suggests that competitive markets should achieve a state of equilibrium. It means that workers with similar skills should receive similar wages regardless of the place of work (Shim and Yang 146). The theory assumes that people can move freely and, thus, would immigrate to industries with higher earnings (Shim and Yang 146). However, the reality rarely coincides with this framework as it fails to recognize some other reasons that may determine the average wage in a certain business sphere.

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Firstly, certain industries mostly offer occupations that necessitate more skilled labor than others ones. For instance, most of their employees require good computer coding knowledge from companies that operate in the information industry. Such professionalism, in turn, can be achieved only after substantial temporal and financial investments into personal education and preparation. Therefore, the workers in this sphere enjoy the highest average salary in the U.S. (Statista Research Department). On the contrary, such spheres as retail trade generally do not require high skills, which means that more people are able to do this job. For this reason, the salaries are quite low compared to the former industry.

Moreover, the industry’s degree of capital intensity and its profitability determine the salary of the workers. The former is determined by the amount of technological equipment involved in the production of goods or services. On the one hand, machinery and robotics allow improving the overall performance significantly and thus bring additional revenues. On the other hand, it also attracts a more qualified labor force, which, as discussed previously, necessitates higher salaries. Therefore, technologically advanced industries are generally more profitable, enabling them to pay their workers higher salaries. Yet, the latter also need to be more skillful to apply for the position in this sphere.

Finally, employees in industries with stronger trade union influence usually have higher salaries. Indeed, the collective bargaining power is substantially higher than that of the individual worker. As such, trade unions are able to effectively organize strike actions in a relatively short period of time if their demands are not satisfied. Consequently, employers are more ‘willing’ to increase the salaries in such industries as otherwise, they may face substantial financial and reputational losses.

Works Cited

Shim, Myungkyu, and Hee-Seung Yang. “Interindustry Wage Differentials, Technology Adoption, and Job Polarization.” Journal of Economic Behavior & Organization, vol. 146, 2018, pp. 141-160.

Statista Research Department. “Wage and Salary Accruals per Full-Time Equivalent Employee in the United States in 2020, by Industry (in U.S. Dollars).” Statista, 2021, Web.

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