[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Determinants of union power:
Political and legal environment
Economic environment: salience of the threat of replacement and unemployment
Wage Differentials
The basic competitive model suggests that if the goods being sold are the same,
prices will also be the same. Wages are the price in the labor market; but even in
the absence of unions, similar types of workers performing similar types of jobs are
sometimes paid quite different wages. For example, some secretaries are paid twice
as much as others. How can economists explain differences like these?
An understanding of wage differentials begins with the observation that although
different jobs may have the same title, they can be quite different. Some are less
pleasant, require more overtime, and are in a less convenient location. These are
nonpecuniary attributes of a job. Other nonpecuniary attributes include the degree
of autonomy provided the worker (that is, the closeness with which her actions are
supervised) and the risk she must bear, whether from physical hazard or from variability
in income. Economists expect wages to adjust to reflect the attractiveness
or unattractiveness of these nonpecuniary characteristics. Compensating wage
differentials arise because firms have to compensate their workers for the
negative aspects of a job.
Other differences are accounted for by differences in the productivity of
workers. These are productivity wage differentials. Some workers are much more
productive than others, even those with the same experience and education.
Compensating and productivity wage differentials fall within the realm of the
basic competitive model analysis. But other wage differentials are due to imperfect
information. It takes time to search out different job opportunities. Just as one store
may sell the same object for a higher price than another store, one firm may hire
labor for a lower wage than another firm. The worker who accepts a lower-paying
job simply because he did not know about the higher-paying one down the street
illustrates an information-based differential.
Limited information has important implications for firms. First, in the standard
competitive model, firms face a horizontal supply curve for labor. If they raise wages
slightly above the “market” wage, they can obtain as much labor as they want. In
practice, mobility is more limited. Even if workers at other firms knew about the
higher wage offer, they might be reluctant to switch. They may worry that they are
not well matched for the job, or that the employer is offering high wages because
the work is unattractive.
Second, firms worry about the quality of their workforce. If an employer offers
a higher wage to someone working for another firm and the worker accepts, the
employer might worry about the signal the acceptance sends about the worker’s
quality. Did his current employer—who presumably knows a lot about the
worker’s productivity—fail to match the job offer because his productivity does not
warrant the higher wage? Does the worker’s willingness to leave demonstrate a “lack
of loyalty,” or an “unsettled nature”—in which case, he may not stick with the new
362 ∂ CHAPTER 16 IMPERFECTIONS IN THE LABOR MARKET