The Differences in Price of Labour Existing in the U.K Considering Some Factors - Term Paper Example

Labour market report Introduction Labour is an important factor of production. The labour market involves bringing in work force and selling of the same to different sectors of the economy. Labour in the economic terms is very much perceived as a commodity, whereby it is essential to match labour demand with labour supply. Since the forces of supply and demand pay an important role in the labour market, the price of labour is fixed through the interaction of these two forces. There also exists competition in the labour market just as in other forms of capital market and labour is traded in a much similar way as other capitalist goods and services are (Timothy and Wheaton, 2001). Organizations thus aim to procure labour resources at the best possible price. While organizations seek to buy labour at lower rates, workers are seen to sell their labour in the most competitive manner possible. Payment of wages in the labour market is seen to be an aspect which varies drastically. The price of labour depends on their level of availability and their productivity (Manasse and Turrini, 2001). When labour is scarce, and the demand is high, it is likely that the price of labour is adequately high. Also the productivity of labour is an aspect to consider in analysing their wages. Qaulity of labourers vary high thus causing wage differentials across sector, apart from the general phenomenon of the interaction of demand and supply (Edwards, 2009). The current paper analyses the differences in price of labour existing in the U.K considering factors such as gender, sector differentials and region of work. The discussion in the paper has been carried out on the basis of the data obtained from the ASHES report. On the basis of the data procured from the ASHE website, differences existing in the pay of workers have been analysed. The data is linked with the existing theories of wage differentials so as to suitably understand the causes which lead to such diversity. Hence it can be stated that the prime objective of the current paper is understand the differences which exists in the wage payments on the basis of phenomenon’s such as gender, industrial sector and region. Detailed and elaborated emphasis has been put upon analysing theories which are associated with labour market differentials. Data presentation Data for the current analysis has been collected from the ASHE website. The Annual Survey of Hours and Earnings (ASHE) is an employer and labour based survey website. ASHE publishes information related to wage payments on the basis of different factors of analysis. Surveys conducted by ASHE largely include those based on full time and part time employees who are paid hourly, weekly and monthly. The information is processed statistically and is presented on the basis of median or mean values. In the current report information regarding full time employees has been used. Their pays have been analyses on an annual basis, using median or mean values. The ASHE website acquire information from the HM Revenue and Customs department’s PAYE (pay as you earn) records. The website not only publishes consolidated data in respect of payments but also the hours of productivity obtained from workers in different periods and over diverse categories. The information obtained for developing the data is treated confidentially by ASHE survey. For the current analysis the following data has been collected (Office for national statistics, 2014). Figure 1: Median gross annual earnings on the basis of gender (£000) (Source: Office for national statistics, 2014) Figure 2: Mean total weekly paid hours on the basis of gender (£000) (Source: Office for national statistics, 2014) Figure 3: Percentage annual chaange in wages on the basis gender All Men Women Median percentage of change from 2011 to 2012 1.4 1.2 2.1 Mean percentage of change from 2011 to 2012 -0.1 -0.2 0 (Source: Office for national statistics, 2014) Figure 4: Median gross annual earnings on the basis of industry sector (£ 000) (Source: Office for national statistics, 2014) Figure 5: Median gross annual earnings on the basis of region (£000) (Source: Office for national statistics, 2014) Figure 5: Median gross annual earnings based on age difference (£ 000) (Source: Office for national statistics, 2014) ASHE researchers are seen to measure wages in the U.K on the basis of both weekly and monthly earnings. However for the convenience of analysis in the current paper only the information related to annual wages for full time employees across three important categories have been taken. The selected categories are gender, occupation sector and region. The survey prefers taking the median values as they are less affected by the existence of a small number of very high earners. The earnings information used for determining the median values are calculated on the basis of the following (Office for national statistics, 2014): Earnings of workers= Basic pay + overtime + bonus + allowances The data procured from ASHE surveys are used widely by organization, educational and research institutions for developing suitable ideas regarding the existence of wage parity in the U.K. The survey adequately facilitates examining trends and compares the inequalities. On the basis of the survey results necessary wage related theories have been studied and it is determined whether such pay variations due to gender, sector and region are connected with existing theories (Office for national statistics, 2014). Discussion Neo classical theories The neo classical theory of wage differentials states that supply and demand are the only factors which effect pay. Hence when they exists adequate demand and opportunities for workers in the market, their wages are seen to automatically increase. If this theory is held to be true then wage differences due to gender or sector would not occur (Aglietta, 2000). However on the basis of the collected data from the ASHE website in respect of the median gross earnings of women as compared to men differ highly. Similarly it is also seen that there exists substantial difference in the pay of workers between different sectors of operations (Perkins and White, 2011). Since the neo classical theories have remained incapable of explain the reasons behind wage differences, theorist have developed extension to remove other notions of wage differentials (Colling and Terry, 2010). For instance, the human capital theory which is considered as an extended component of the neo classical approach states that the reason behind why women are paid less as compared to men is due to the factor that they invest less skill in organizational productivity. The talent and skills of women are mainly invested towards jobs which require less skill (Gerhart and Rynes, 2003). Women are also seen to undertake jobs which belong to the category of caring and predominantly such jobs are less paid. In respect of the differences in wages which exists in different sectors, the neo classical theory states that there exist potential differences in the demand for workers in different sectors. Accordingly there arises a difference in the price of labour (Duncan and Holmlund, 1983). The neo classical approach is held by many as incapable of adequately explaining the differences which exists in wages due to gender, sector or region. Women in the current age are highly educated and are seen to be able to invest in human capital equally as men. Also the collected data from the ASHE survey clearly shows that the median wages of women in the year 2012 had increased by 2.1% as compared to the year 2011. If labour provided by women were less important, such a rise would not have taken place. This clearly explains that the neo classical approach provides less information in respect of wage differentials due to factors other than demand and supply (Marchington and Wilkinson, 2005). Class and gender based theories The class based theories facilitates understanding to a certain extend the differences which exists in wages in respect of different sectors and regions. The class based theory adequately suggests that employers focus upon acquiring cheap labour. In order to be able to achieve the targets of cheap labour, companies indulge in discriminatory practices. Such discriminatory practices lead towards the creation of divisions and try to exploit those who suffer from such discrimination (Calvó-Armengol and Jackson, 2007). Many organizations are also seen to accept the strategy of divide and rule. As a result workers are prevented from joining together which may cause enhancing their strength and leading towards increasing the wages. Due to such occupational segregation wage differentials can be easily be implemented (Duncan and Holmlund, 1983). Under the class and gender based theories, occupational segregation can be achieved either horizontally or vertically. Horizontal segregation facilitates giving effect to gender differences in pay by providing the more effortful jobs to men. Hence in organizations where women are provided with less pay can be stated to follow the horizontal segmentation as they do less critical jobs (Aidt and Tzannatos, 2002). Apart from pay differences in wages, horizontal differentiation also facilitates job role differences. In vertical segmentation, it is seen that men are more frequently opted for promotions and pay scale increases. The data procured from the ASHE survey clearly shows that the median values of annual wages provided to men are higher than that of men (Reder, 1955). The commercial world of U.K is seen to be strongly dominated by gender discrimination. Most employers prefer male candidates than female. Hence men are seen to have more power over the highly paid jobs and seen to be able to have better career growth opportunities than women (Rainbird, Fuller and Munro, 2004). Additionally the class based theories also critically suggests that gender discrimination is further effected by a number of factors such as age and organizational sector (Elhorst, 2003). Regional differences and the Balkanisation effect London, South East U.K and England are seen to be the regions where employees are paid very highly as compared with the other regions. It can be stated that the differences in regional pay majorly arises due to the Balkanisation effect. This theory states that labour market wages can be controlled through restricting labour movement. Regions of the U.K where wages are seen to be high are governed by strict human resource and employment regulations. As a result external labourers and those with fewer job skills are not provided with proper career opportunities. This as a result it is possible to maintain a low labour supply, resulting in higher wages. The protected market conditions are therefore enjoyed by the employed workforce (Boyer and Smith, 2001). The advantages of high wages existing in these regions cannot be further be exploited by workers of other regions due to the existence of strict barriers of entry. The differences in pay on the basis of regions are also seen to be effected by the existing level of skills and talent. It is fundamentally observed that the workers in London and England are seen to be having better knowledge and skills than the other regions. Hence according to the Balkanisation approach the quality of the human capital leads to the generation of wage differentials across regions (Yankow, 2006). Union effect on wages and sectoral differences in wages A crucial aspect which impacts wages in many organizational sectors and regions in the U.K is the existence of unions (Smith, 2002). The collected from ASHE reveals that the mining, quarrying and the power industry are seen to be most crucially impacted by increased wages due to the existence of unions and a large workforce. In general it is observed that organizational sectors which require high man power and are less automated, tend to provide more wages, leading to industry wise differences in wages (Lanfranchi, Ohlsson and Skalli, 2002). This is due to the fact that since there are a number of labourers, it becomes possible to develop unions and therefore increased wages are affected. In other words it can be stated that organizational sectors where power vested in the hands of employees are high are seen to provide higher wages to the employees. However not all firms possess equal employee power. Therefore it is observed that wage differentials exist due to unions in larger and more worker intensive organizations (Manning, 2003). Wage differences based on age Wage differences due to age are fundamentally due to the varying abilities to take responsibilities alongside of age differences. The data obtained from the ASHE website in respect of differences in wage due to age reveals that the wage gap is wider between the millennial and the young age group. While as employees surpass the millennial age group the wage gap reduces. As the age of employees increase, their experience and knowledge base tends to become wider. Since they serve a greater period doing similar types of activities, their knowledge base facilitates in obtaining promotions and reaches a higher pay scale. Conclusion Pay differentials are a common phenomenon in today’s globalised economy. It is existence of such pay differentials which facilitates making some markets more competitive than others. Most commonly it is observed that wage discrimination occurs on the basis of gender and organizational sector. Organizations where job roles are risky and more responsible tend to pay higher wages. Due to the complexities of the commercial world it is not possible to establish equal pay scales. Wage discrimination is therefore a phenomenon which labourers therefore are required to accept. From the conducted analysis in respect of the data collected from ASHE survey, it is understood that wage discrimination fundamentally occurs due to the skills and abilities of workers. Since male workers are considered to be more efficient, there pay scales are seen to be higher. Similarly organizations with more complex job roles offer higher pay. Also due to the existence of strict job regulations external entry of labourers are controlled, thereby facilitating higher wages than other regions. Reference list Aglietta, M., 2000. A theory of capitalist regulation: the US experience. New York: Verso. Aidt, T. and Tzannatos, Z., 2002. Unions and collective bargaining: economic effects in a global environment. 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