Why Do Wages Differ Across Occupations?
Why do Wages Differ Across Occupations?
There is substantial variation in wages across occupations. Most professional athletes earn more than medical doctors, who earn more than college professors, who earn more than janitors. We will see that the wage for a particular occupation will be high if the supply of workers in that occupation is small relative to the demand for those workers. Always the supply curve intersects the demand curve at a high wage. The supply of workers in a particular occupation could be small for four reasons:
• Few people with the required skills. To play professional baseball, people must be able to hit balls thrown at them at about 90 miles per hour. The few people who have this skill are paid a lot of money, because baseball owners compete with one another for skillful players, bidding up the wage. The same logic applies to other professional athletes, musicians, and actors. The few people who have the skills required for these occupations are paid high wages. If supply is low relative to demand because few people have the skills, training costs are high, or the job is undesirable the equilibrium wage will be high.
• High training costs. The skills required for some occupations can be acquired only through education and training. For example, the skills required of a medical doctor call for medical school training, and legal skills must be acquired in law school. If it is costly to acquire these skills, a relatively small number of people will become skilled, and they will receive high wages. The higher wage compensates workers for their training costs.
• Undesirable working conditions. Some occupations have undesirable working conditions, and workers demand higher wages as compensation. Wages are higher for jobs that are dirty or stressful or require people to work at odd hours.
• Danger. Some jobs are dangerous, and wages are higher to compensate for the risk of injury or death. The workers with the greatest risk of losing
There is substantial variation in wages across occupations. Most professional athletes earn more than medical doctors, who earn more than college professors, who earn more than janitors. We will see that the wage for a particular occupation will be high if the supply of workers in that occupation is small relative to the demand for those workers. Always the supply curve intersects the demand curve at a high wage. The supply of workers in a particular occupation could be small for four reasons:
• Few people with the required skills. To play professional baseball, people must be able to hit balls thrown at them at about 90 miles per hour. The few people who have this skill are paid a lot of money, because baseball owners compete with one another for skillful players, bidding up the wage. The same logic applies to other professional athletes, musicians, and actors. The few people who have the skills required for these occupations are paid high wages. If supply is low relative to demand because few people have the skills, training costs are high, or the job is undesirable the equilibrium wage will be high.
• High training costs. The skills required for some occupations can be acquired only through education and training. For example, the skills required of a medical doctor call for medical school training, and legal skills must be acquired in law school. If it is costly to acquire these skills, a relatively small number of people will become skilled, and they will receive high wages. The higher wage compensates workers for their training costs.
• Undesirable working conditions. Some occupations have undesirable working conditions, and workers demand higher wages as compensation. Wages are higher for jobs that are dirty or stressful or require people to work at odd hours.
• Danger. Some jobs are dangerous, and wages are higher to compensate for the risk of injury or death. The workers with the greatest risk of losing