Why Do Some Workers Earn Higher Wages Than Others?

Economic inequality is a key issue for economists, sociologists and politicians alike. One factor that affects economic inequality is the broad range of wages that workers earn, allowing some to become wealthy through their efforts while others struggle to make ends meet. Many factors play into what workers earn and account for some earning significantly more than others.

Workers who have special skills that are in high demand tend to earn higher wages than workers who lack those skills. Employers evaluate workers' skills when they make recruiting decisions but also through regular employee evaluations and from feedback from supervisors. Some skills make workers more versatile, allowing them to perform numerous tasks as needed while colleagues with fewer skills may be restricted to fewer tasks and slower to earn wage increases. Workers who acquire new skills through training may receive wage increases to reflect their new abilities. A worker with an in-demand skill also has a better chance of receiving a higher starting wage.

Workers earn higher wages throughout their careers based on the experience and seniority they accrue. Most employers give periodic raises to employees who remain with the company, either to prevent them from leaving for employment elsewhere or to reward success. Workers who have long histories of working in a given field can use their experience to negotiate a higher wage than a new worker would earn.

Workers who receive incentive pay have an additional chance to earn higher wages than workers who have fewer incentive options. When employers offer flex pay based on production, workers who produce more will receive higher wages. A similar situation occurs when an employer offers overtime or holiday pay; workers who put in more hours at the higher rate receive higher wages than those who continue to work a standard schedule.

Labor unions also play a role in what wages employees earn. Unions negotiate with employers, usually throughout a given industry. Among the terms that unions seek are higher wages and regular pay increases based on loyalty and skills. Workers who have unions negotiating on their behalf may earn higher wages than workers who perform similar tasks but work in a business or industry where unions are scarce.