wage differentials

Question 1

why are there wage differentials in respect to perfect competition assumptions

Answer 1

labour is not homogenous (different mrp and supply), labour is not perfectly mobile, occupational and geographical immobility, lack of knowledge

Question 2

why are there wage differentials, other than assumptions of perfect market

Answer 2

non monetary conditions compensating for differences, pensions, flexibility, trade unions may exist leading to different wages in occupations, monopsonies wage setting ability, lower wages

Question 3

why may wage differentials be good in terms of incentives

Answer 3

incentivises to further education and to improve skills and qualifications which increases income and productivity, long run growth due to lower cop

Question 4

why may wage differentials be good in terms of trickle down effect

Answer 4

multiplier effects from higher amounts of spending from higher income earners, increases demand for certain sectors, job creation and incomes, higher taxes from gov leads to higher tax revenue, helps poor

Question 5

why may wage differentials be good in terms of enterprise

Answer 5

encourages enterprise, boosts mrp, risk for higher wages, entrepreneurship, long run growth potential

Question 6

why are wage differentials good in terms of welfare

Answer 6

encourages work not welfare, higher wages than benefits are available, less gov spending on benefits, constant or decrease in taxes

Question 7

why may wage differentials be good in terms of allocation of resources

Answer 7

allocation of labour, suitable jobs for individuals, happiness increases

Question 8

why may wage differentials be bad in terms of income

Answer 8

income inequality increases poverty, lowering living standards, gov spending rises, reduces growth, poor have high MPC, restrains spending

Question 9

why may wage differentials be bad in terms of social costs

Answer 9

increases crime, depression, anxiety, divorce, protests, creating negative externalities, higher spending on police and courts

Question 10

why may wage differentials be bad in terms of trickle down effect

Answer 10

trickle down effect may not happen, higher wage earners may save money, evade taxes, lowering tax revenue

Question 11

why may wage differentials be bad in terms of monopsonies

Answer 11

government has limited solutions for monopsonies, inflation risks and wages stay low

Question 12

evaluation of wage differentials

Answer 12

how much inequality is there, costs vs benefits, risks to gov failure, let wage differentials persist?, long run benefits may be larger than short run costs