AQA Specification focus:
‘The conditions necessary for wage discrimination; the impact of gender, ethnicity and other forms of discrimination on wages, levels and types of employment; real-world examples should be used to illustrate wage discrimination.’
Introduction
Wage discrimination occurs when equally qualified workers performing the same job receive different pay due to factors unrelated to productivity, such as gender, ethnicity, or age.
Conditions for Wage Discrimination
For wage discrimination to exist, certain conditions must be present in the labour market:
Imperfect labour markets: Firms must have some degree of monopsony or market power, allowing them to set wages below competitive levels.
Employer prejudice or bias: Employers may pay different wages based on characteristics like gender, race, or age, despite identical productivity.
Lack of worker mobility: Limited opportunities for workers to switch jobs or regions can trap them in discriminatory wage structures.
Information asymmetry: Workers may not know about wage differences or available alternatives, reducing their bargaining power.
Occupational segregation: Certain groups may be concentrated in lower-paid industries or roles, sustaining systematic differences in wages.
Wage Discrimination: The practice of paying workers different wages for the same work due to characteristics unrelated to productivity, such as gender or ethnicity.
Impacts of Wage Discrimination
Wage discrimination has significant consequences for individuals, firms, and the wider economy.
Impact on Workers
Lower earnings: Groups subject to discrimination earn less for equivalent work, reducing lifetime income and career progression.
Reduced job satisfaction: Inequalities in pay undermine motivation and can increase staff turnover.
Limited opportunities: Discriminated groups may be confined to specific roles or sectors, restricting skill development and mobility.
Impact on Firms
Reduced productivity: Firms that discriminate may fail to allocate labour efficiently, missing out on the best candidates for roles.
Higher costs: Discrimination can increase turnover, absenteeism, and training costs.
Reputational damage: Firms identified as discriminatory may face negative publicity, legal challenges, or consumer boycotts.
Impact on the Economy
Inefficient resource allocation: Discrimination prevents workers from being matched to roles that best suit their skills.
Lower aggregate demand: Groups receiving lower wages have less disposable income, which reduces overall spending in the economy.
Wider inequality: Wage gaps reinforce social and economic inequalities across gender, ethnic, and demographic lines.
Forms of Wage Discrimination
Wage discrimination manifests in different ways depending on the factor involved.
Gender Discrimination
Women are often paid less than men for similar roles.
A persistent gender pay gap exists globally, though the size varies across industries and regions.
Discrimination may stem from employer bias, undervaluing traditionally female-dominated occupations, or barriers to career advancement such as the "glass ceiling."
Ethnic and Racial Discrimination
Workers from minority ethnic groups may face lower wages despite comparable qualifications and productivity.
Causes include employer prejudice, stereotyping, and reduced access to career networks or training opportunities.
Age Discrimination
Younger workers may be underpaid due to perceptions of inexperience.
Older workers may face wage penalties due to stereotypes about adaptability or productivity.
Real-World Examples
Gender pay gap in the UK: According to the Office for National Statistics, the median hourly wage for women remains below that of men, particularly in senior professional roles.
Ethnic pay disparities: Research highlights wage penalties for Black, Pakistani, and Bangladeshi workers in the UK compared to White counterparts with similar qualifications.
Occupational segregation: Women are disproportionately concentrated in lower-paid sectors such as care work and retail, while men dominate higher-paying fields like engineering and finance.
Causes of Persistence in Wage Discrimination
Despite legal protections and equality legislation, wage discrimination continues due to:
Cultural and social norms: Long-standing stereotypes about gender roles or ethnicity influence recruitment and promotion decisions.
Labour market institutions: Inadequate enforcement of equal pay laws or weak trade union representation for certain groups.
Negotiation dynamics: Evidence suggests women and minority groups may be less likely to negotiate aggressively for higher pay, partly due to systemic barriers.
Evaluating the Effects
While wage discrimination is harmful, understanding its persistence helps explain structural inequalities in labour markets.
Short-Term Effects
Increased profits for firms that exploit wage discrimination by paying workers less than their marginal revenue product.
Wage suppression for affected groups, reinforcing inequality.
Long-Term Effects
Lower overall economic growth due to inefficient allocation of talent.
Entrenched social inequality, reducing equality of opportunity across generations.
Potential for government intervention through anti-discrimination legislation, monitoring of pay gaps, and policies to encourage diversity and inclusion.
FAQ
Wage discrimination occurs when workers with the same productivity are paid differently because of non-economic characteristics such as gender, ethnicity, or age.
Wage differentials, however, may arise for valid economic reasons such as differences in skill levels, education, experience, or regional cost of living. While differentials reflect productivity or market factors, discrimination does not.
Occupational segregation channels groups of workers, often women or minority groups, into specific industries or roles.
Many of these roles, such as care work or retail, tend to be lower paid despite requiring valuable skills.
Limited mobility between occupations means workers face structural barriers, keeping wage gaps persistent.
This structural pattern amplifies discriminatory outcomes even if wages within roles are equal.
Governments often use statistical methods such as decomposing the gender or ethnic pay gap.
They control for education, occupation, experience, and hours worked.
Any remaining unexplained difference is attributed to discrimination.
Mandatory pay gap reporting, as used in the UK for firms above a certain size, is also a common tool to track disparities over time.
Not necessarily. In the short run, discriminatory employers may cut costs by paying certain groups less than their marginal productivity.
However, in the long run, this misallocates resources, lowers morale, increases turnover, and damages reputation. While short-term gains may occur, persistent discrimination usually reduces competitiveness and efficiency.
Imperfect information reduces workers’ ability to compare wages across firms and sectors.
Workers may accept lower pay if unaware of better opportunities.
Employers can exploit this by offering discriminatory wages without fear of immediate detection.
This allows wage discrimination to persist even in markets with legal protections.
Practice Questions
Define wage discrimination and identify one condition necessary for it to occur. (2 marks)
1 mark for a correct definition of wage discrimination (e.g. paying different wages to workers for the same job due to characteristics unrelated to productivity, such as gender or ethnicity).
1 mark for identifying a condition (e.g. employer prejudice, monopsony power, lack of worker mobility, or imperfect information).
Explain how wage discrimination can impact both workers and the wider economy. (6 marks)
Up to 2 marks for explanation of impact on workers (e.g. reduced earnings, limited opportunities, lower job satisfaction).
Up to 2 marks for explanation of impact on firms or economy (e.g. inefficient resource allocation, lower aggregate demand, wider inequality).
1–2 marks for developing the explanation with economic reasoning (e.g. linking reduced disposable income to weaker aggregate demand, or misallocation of talent reducing productivity).
Maximum 6 marks: clear, well-structured answers with at least one effect on workers and one effect on the economy.
