What this lesson teaches
I can explain why wages differ between workers, including skill, sector, discrimination and public or private employment.
Syllabus K343, 3.3.3. Reasons for differences in wages: reasons for differences: demand for and supply of labour, relative bargaining strengths, discrimination, e.g. male/female, government policy; how these reasons influence the wages of workers, depending on: level of skills of workers, economic sector workers operate in: primary/secondary/tertiary, discrimination between workers, e.g. male/female, whether the worker is working in the private sector or public sector
Make a guess
Is every job in the tertiary (services) sector better paid than every farm job?
- Yes. Service jobs pay more than farm jobs because they need more skill.
- No. Farm jobs pay more than service jobs because they are tiring.
- No. Services include low-paid jobs like cleaning and retail.
Show the answer
No. Services include low-paid jobs like cleaning and retail.
Sector alone does not set pay. Within services, a cleaner and a lawyer face very different demand and supply.
Skilled workers, tertiary sector workers, men in many countries and some private sector workers tend to earn more, and the four reasons explain each pattern.
The syllabus asks how the four reasons shape the wages of particular groups. For each pattern, name the group, give the reason, and explain the chain from the reason to the wage.
Skilled and unskilled workers. Skilled workers usually earn more. Their skills take time and money to gain, so fewer people have them: supply is low. They also produce more value per hour, so firms demand them strongly. Unskilled workers face the opposite: many can do the work, and a machine or a foreign worker can often replace them, which also weakens their bargaining power.
Primary, secondary and tertiary sectors. Workers in farming and fishing (primary) often earn less, because output per worker is low and the work needs fewer formal skills. Many tertiary jobs, such as finance, law and IT, need high skills and create a lot of value per worker, so they pay more. But the tertiary sector also includes low-paid jobs, such as cleaning and retail, so sector alone does not decide pay.
Male and female workers, and public and private sectors. Women often earn less on average than men. Part of the gap comes from discrimination, and part from women more often taking time out to care for children or parents, which slows their pay rises. Private sector pay usually moves with profits and can be high for scarce skills. Public sector pay is set by government scales and is often steadier, with more job security.
- Skill and pay
- Scarce skills that create a lot of value earn high wages.
- Gender gap
- Caused partly by discrimination and partly by time out for caring.
- Public vs private pay
- Private pay moves with profits; public pay follows government scales and is steadier.
Worked example: Explaining a gap with a full chain
Suppose an exam asks why a bank's data analyst in Singapore earns more than a worker on a vegetable farm in Lim Chu Kang.
- Demand: the analyst helps the bank make large profits, so each hour of work is worth a lot to the employer.
- Supply: few people have the data and finance skills, which take years to learn.
- Farm worker: output per worker on a small farm is lower and many people can do the work after a little training.
- Who is affected: the farm worker earns less and has weaker bargaining power; training, such as SkillsFuture courses, is one way to move into better-paid work.
Watch out for this
Every tertiary sector job pays more than every primary sector job.
The tertiary sector includes some of the lowest-paid jobs, such as cleaning and retail. Pay depends on the skill and the demand and supply for that job, not on the sector name.
Check your understanding
Which reason best explains why a private sector software engineer may earn more than a public sector clerk?
- Public sector pay is set by law below private sector pay for the same job
- The engineer's skills are scarce and produce high value for the firm
- Software engineers belong to a strong trade union, while clerks do not
Show the answer
The engineer's skills are scarce and produce high value for the firm
Right. High demand and low supply of a skill give a high wage, whatever the sector.