In the United States, it is common for some people to earn more than others. Why does a 24 year old engineer earn less than a 48 year old engineer? While this fact is taken for granted, it is something that needs to be investigated. In this essay, concepts such as shifts in the demand for resources, productivity, and income inequality will be discussed.
One thing that produces the differing wages among workers is the demand for different types of workers. These workers are frequently referred to as human capital. Human capital is a resource that all firms are in demand for; yet they demand different types of human capital. There are differences between the types of human capital needed for each different firm. A firm that produces clothing in a factory does not want to employ workers who have doctorate degrees to operate the sewing machines because doctors are higher educated and command a far higher wage than an uneducated worker. Likewise, a hospital would not want to employee garbage collectors to perform open heart surgery even though they are cheaper, because their lack of experience in medicine would cost the hospital far more when they are unable to perform a quality surgery.
Human capital is just like any other type of natural resource. Human capital is any type of worker that leads directly to a firm being operational. A firm such as a hospital will need human capital such as nurses, doctors, surgeons, lab technicians, janitors, and hospital managers. A corporation will need a CEO and other executives to lead the firm, janitors, managers, secretaries, computer technicians, accountants, and depending on the type of firm, engineers and menial labor to work in production areas such as factories, plants, mines, farms, or construction sites. All manner of jobs, from highly respected fields to bottom of the barrel positions are human capital. Just like a super computer and a robot that assembles automobiles is capital just like a shovel or pickup-truck. However, human capitol, just like other forms of capital, cost more based upon the advanced nature of that capitol. A doctor cost more than a janitor to employee, just like a robot will cost more than a shovel to employee. Also, human capital is subject to the laws of supply and demand just like any other resource. Currently, there is a demand for nurses, and a shortage of nurses. Because of this, wages for nurses have increased, leading to more supply being produced (by way of worker going to colleges to be educated in nursing) because of the higher price. The same can be said for natural resources such as coal, where more coal is supplied when demand, and thus price, increases.
Productivity is also a factor in the differences in wages between employees. Productivity is the amount of work that an employee can produce at a given time. It should go without saying then, that the size of an employee’s wage determines productivity. While a firm might feel that it is getting a “good deal” by hiring an employee at a drastically cheaper wage than his peers, this is not always true. Many times, employees with lower wages are just not as productive as the peers who are granted higher wages. Why? This is because they do not have the motivation to work as hard. This sort of dilemma is not just related to human employees. If a firm buys computer keyboards that are cheaper than other products on the market, but do not have the same durability and “lifespan” as the more expensive keyboards, they will be spending funds on this equipment more often than if they had bought a more expensive, yet more durable keyboard. Likewise, human capital that is cheaper yet less motivated than an employee with a higher wage will not produce as much as the costlier employee. Instead, the firm may have to hire another employee to produce the needed amount of product.
Ultimately, the concept of income inequality is the overall factor and point of focus in the study of why some make more money than others. Income inequality is essentially the inequality of income earned between different people. There are many reasons for income inequality, one of which is the location of the workers and firm, and the cost of living in that location. A part time worker at a convenience store in Atlanta, Georgia may earn more than an employee who is equal in every aspect (job duties, productivity, etc) but works in a rural town like Arcade, Georgia (which has a far smaller population than Atlanta). This is mainly because the cost of living is far more in Atlanta. The part-time worker in Atlanta has to be paid the higher wage in order to actually be able to afford the higher cost of living in a big city. Internationally, the same reasoning applies. Workers living in Tanzania or North Korea have a lower cost of living than workers in the United States or Japan. Tanzania and North Korea are nations in which the populace in general lives in relative poverty, and for them the lower wages meet their cost of living.
Of course, workers in Tanzania and North Korea (or any other generally impoverished nation) do not have the same level of education as workers in nations such as the United States, Japan, the United Kingdom, or Canada. Because of their less developed educations, they are not in as much demand as more highly educated people such as doctors, scientist, mathematicians, or engineers. This is because they are unable to do any sort of work that requires specialization, or even any sort of complicated type of work besides menial labor. This also applies to workers within the same country. A worker with a doctorate in medicine is going to earn a higher wage than somebody who only has a high school education because there are far fewer people with that amount of education. There is less supply of doctors, and they cannot be substituted with the cheaper high school graduate. The cost of the education for the doctor is also much more costly than the cost of the high school education, which adds to the cost of this resource. Just like petroleum may cost more to produce than vegetable oil, but vegetable oil is not able to be substituted for petroleum frequently. Thus, employers have to pay more for more highly educated workers because of both the supply of these workers and the cost to produce these workers.
Going back to the example of North Korean workers, another reason that they earn less than other workers is because of productivity issues. Workers in nations that have Communist or Socialist economic systems that adhere to Maoist principals tend to have less productive workers, because they earn low wages, but also because they are going to be paid the same amount of money no matter how productive they are, or what the quality of the work is. Another reason for lower productivity is less education. Poorly educated workers take long amounts of time to perform their job duties because they may be illiterate, unable to do simple mathematics, unable to write, unable to even comprehend or logically think. Another reason that workers find themselves earning more or less is discrimination. Discrimination in this context refers to the preference or bias towards one race and/or gender over another. Throughout the 20th century in the United States, discrimination was rampant in the workplace, with white males earning far more than other gender and race combinations. Many times today, employers of all races and genders will discriminate towards workers that they prefer due to race or gender. A Korean shop owner might hesitate to pay Japanese or African-American as much as another Korean. A German factory owner might give a Russian or Jewish employee a lower wage. While laws have been made to prevent actions such as these on the part of employers, it can be hard to prove and many times might not even be reported to authorities due to fear of reprisal on the part of the employee who is discriminated against.
While there are those who earn lower wages for whatever reason, the concept of income mobility exist in capitalist cultures. Income mobility is the idea that a workers income can change, meaning that it is mobile, over the course of his or her career. This can happen in many ways. Age is one reason a workers income is mobile, due to the fact that older and thus more experienced workers are more desirable. Workers can reeducate themselves and attain a higher status throughout the course of their career. Workers who are clever can find ways to branch out from lower paying jobs. Likewise, workers who are more productive, cooperative with coworkers, determined, and enthusiastic will find themselves getting promoted to higher paying jobs.
In conclusion, the differences in wages among workers are determined by various means and circumstances in the market place, and are ultimately determined by the individuals that participate within the market place.