INTER & INTRA INDUSTRY WAGE DIFFRENTIALS

INTRODUCTION

The right to equality is one of the six rights that have been granted to the Indian citizens. The State shall not discriminate against any citizen on grounds of religion, race, caste, sex, place of birth or discrimination against any individual in respect of, any employment etc. However this particular Right to Equality applies practically to the State owned Offices where people with similar kind of Positions & Qualifications are given similar compensation for similar kind of Jobs and not in the Private Jobs. Thus, there exists a lot of Inter & Intra Wage Diffrentials throughout the Industry.

Different wages paid to different workers or in different markets adjust for differences in the jobs or in the productivity of the workers. Wage differentials occur for many reasons. Quite often they are the result of the personal preferences of workers. In some cases workers are willing to "buy" leisure-time or other types of household production by taking lower wages. Differences in job risks, education, and location are also reasons for the persistence of wage differentials.

Wage Diffrentials that exists between the Industry are termed as Inter Wage Diffrentials, whereas those that exist between various organization in an industry is termed Intra Wage Diffrentials. If we talk about the Iron Industry then we can find wage diffrentials within the industry like Tata Steel Limited CEO H.M Nerukar gets the compensation of 7,103,00 per year. Jindal steel CEO Naveen Jindal recieves renumeration of Rs 39.70 Crore. LakhmipatiMittal is the CEO of Arcelor Mittal Steel & is the richest man in Europe and the fifth richest in the world with a personal wealth of US$ 28.7 billion or £19.3 billion. The MD of Ispat Industries Limited Vinod K. Mittal gets an annual Salry of 44,700,000 INR.

Talking about the top paid 5 CEOs in India, the trend shows wage diffrentials that exist betwen various industries i.e. Inter Industry Wage Diffrentials.

1. Naveen Jindal - Naveen Jindal is the executive vice-chairman and managing director of Jindal Steel to their annual remuneration is Rs 39.70 crores.

2. Kalanithi Maran - Managing Director and Acayyaramen Kalanithi Maran of Sun TV in India and his annual remuneration is Rs 37.08 crores.

3. Kaveri Maran - Joint Managing Director of Sun TV and her annual remuneration is Rs 37.08 crores.

4. Pawan Munjal - India's number one motorcycle maker Hero Hoda, CEO and managing director and his annual remuneration is Rs 30.88 crores.

5. Brij Mohan Lall Munjal - Hero Honda Group's founder and his annual remuneration is Rs 29.5 crores.

Some employers find it necessary to pay higher wages to compensate workers for dirty, dangerous, and generally undesirable working conditions. Other employers can pay less for comparable work because conditions are more pleasant.

Three reasons for compensating wage differentials are worth noting:

Risk and Hazardous Conditions: Jobs that are riskier, more dangerous, and have a greater likelihood of injury, typically pay higher wages. For example, coal miners, deep sea divers, and security guards are likely to be paid higher wages than similar jobs due to the hazardous nature of their duties.

Education and Skill: Jobs that require more education, skill, and training also tend to pay higher wages. Higher wages compensate for greater productivity and provide returns on investment in education and training.

Location: Jobs that are at undesirable, more distant, or hard to reach locations also pay higher wages. Firms in cities that have high living costs, inhospitable climates, high crime rates, or other "disamenities" find it necessary to offer higher wages to attract workers.

The World is aware of the fact that similar workers earn very dissimilar wages while working for different employers. Researches have cleared the existence of inter- and intra-industry wage differentials for similar workers within & Outside India. The work of post-war neo-institutional labor economists such as Richard Lester (1952), Lloyd Reynolds (1949), and Sumner Slichter (1950) theorized about and offered empirical evidence in support of the claim that firms possess different pay policies. Contemporary economic theorists (Shapiro and Stiglitz 1984) and empirical labor economists (Dickens and Katz, 1987; Groshen 1991; Groshen and Krueger 1990) have returned to these same themes. Now sophisticated empirical techniques and far better data allow us to say with virtual certainty that wage differences across workers exists throughout world & is difficult to avoid.

Neoclassical economics models of perfectly competitive labor markets hypothesize that pay differences across workers are entirely accounted for by the human capital characteristics of workers, the quality of the working conditions under which they labor, and the non-wage components (e.g., fringe benefits) of the compensation package. This analysis dates back to the pioneering work of Adam Smith and the so-called theory of compensating differentials.

THEORY OF COMPENSATING WAGE DIFFRENTIALS : BY ADAM SMITH

The Theory has the following assumptions:-

1. The model of competitive labor markets implies that as long as workers or firms can freely enter and exit the marketplace, there will be a single wage in the economy if all jobs are alike and all workers are alike.

2. All jobs are not the same. Adam Smith in 1776 argued that compensating wage differentials arise to compensate workers for the nonwage characteristics of jobs. It is not the wage that is equated across jobs in a competitive market, but the “whole of the advantages and disadvantages” of the job.

3. Workers differ in their preferences for job characteristics and firms differ in the working conditions that they offer. The theory of compensating differentials tells a story of how workers and firms “match and mate” in the labor market.

4. E.g. Employer X: Rs. 100 per hour for, clean, safe work conditionsEmployer Y: Rs 100 per hour for, dirty, noisy factory→ Most workers would undoubtedly choose employer X.If employer Y decides not to alter working conditions, it must pay wage above Rs.100 to be competitive in the labor market.→ The extra wage it must pay to attract workers is called a compensating wage differential because the higher wage is paid to compensate workers for the undesirable working conditions.→After the wage rise of firm Y, if both firms could obtain the quantity and quality of works they wanted, the wage differential would be an equilibrium differential, in the sense that there be no forces causing the differential to change

5. The Compensating Wage Diffrential serves a social need by giving people an incentive to voluntarily do dirty, dangerous, or unpleasant work or a financial penalty on employers offering unfavorable working conditions.

6. At an individual level, it serves as a reward to workers who accept unpleasant jobs by paying them more than comparable workers in more pleasant jobs. Those who opt for more pleasant conditions have to buy them by accepting lower pay.

SALARY PAY IN THE IT INDUSTRY

Sr. Software Engineer / Developer / Programmer Rs 591,503

 

Software Engineer Rs 354,452

Software Engineer / Developer / Programmer Rs 325,677

Project Manager, Software Development Rs 1,294,435

Test / Quality Assurance (QA) Engineer (Computer Software) Rs 348,000

Project Manager, Information Technology (IT) Rs 1,064,664

Lead Software Development Engineer (SDE) Rs 873,783

SALARY PACKAGE AT SOME COMPANIES 2010-2011

Senior Executive Administration @ Foster Wheeler Rs 5.4 L

Technical Lead @ MoveInSync Rs 1.8 L

Associate Technology @ Sapient Rs 4.2 L

Senior Software Specialist @ Patni Computer Systems Rs 9.7 L

Engineering Project Manager @ Aricent Rs 11 L

Sr.Software Engineer - QA @ Intuit Rs 13 L

Assistant Manager @ Cranes Software Rs 8.4 L

Software Engineer @ Dell Perot Systems Rs 2.3 L

Assistant Manager @ Accenture Rs 7 L

Software Specialist @ Patni Computer Systems Rs 7.5 L

Differences in interindustry & intraindustry wages have been widely documented over the last two decades, and researchers continue to discuss these differences. In particular, they seek the sources of wage dispersion among individual workers, employers, industries, and geographic areas. Recent attempts to explore the role of particular technologies, including microprocessor technologies, in wage dispersion have heightened interest in this issue.

One key illustration of wage differences across industries for workers with similar levels of education and other “human capital” characteristics is that based on demographic charecteristics. Data obtained from surveys that describe the demographic characteristics of workers are used to measure the portion of the difference in the wages of workers in similar occupations that is attributable to average differences in the level of workers’ “human capital.” Wage differences among industries represent a problem for researchers because differences in the demographic characteristics of workers in similar occupations explain only a portion of the wage differences among industries.

Interindustry wage differentials have largely remained a mystery, although research dating back to 1950 has found that industry affiliation accounts for a significant portion of wage differentials after controlling for education, race, sex, and other “human capital” characteristics of workers. The firms in some industries pay both low skilled and high skilled workers wages that are considerably above the average than those in other industries. Most of what is known about wage differences among industries can be summarized in three basic facts:

1. Industry wage differentials are amazingly uniform across occupations. For example, janitors and managers, alike, appear to receive similar wage differentials, depending on the industry in which they work.

2. Industry differentials have been remarkably stable over time; wage differentials are largely unchanged from the pattern of the 1950s.

3. Industry wage differentials are positively associated within industry characteristics including capital intensity, industry concentration (based on a four-firm concentration ratio, profitability, unionization, and low percentages of women.

Any Wage Structure basically has two kinds of charecteristics ‘Equalities’ & ‘Diffrentials’. Equalities implies that wages & salary of two regions, firms, industries & occupation are equal, while they differ in case of ‘Wage Diffrentials’. Wage Diffrentials that build up the Wage Structure are of various kinds. A research team of Johri & Agarwal has found the following findings:-

1. In a Plant or an Organization the Wage rate differ from individual to indvidual. Even for the same Job the Wages can differ in the same industry & the same region. Thus, Wage Rates vary from Plant to Plant , Department to Department & Industry to Industry.

2. The General Wage Level can also vary from regions to region in a particular industry.3. In an organization there can be several Occupational Designations and the wage rate

between the highest & Lowest Paid can be quite wide.4. Researchers are of the view that the inter-industry wage structure is rather flexible

rather than rigid. The flexibility in the inter–industry wage diffrentials may be due to the high Productivity Industries charecterised by high degree of skill & Capital Intensity required.

5. Researchers are of the view that Presence of the Trade Union have led to the rise in the wages on Productivity or Performance Wages which resulted into the rise in the Wage Diffrential.

6. Researchers view that the earnings due the variations in the skills have been greatly reduced by additions of the dearness allowances & other Fringe Benefits availiable to the employees. So the Salary that an Skilled individual takes home may not differfrom another who is not skilled within or outside the industry.

7. But still the annual total earnings of an worker at one level may differ from others in the same level in some other industries.

FACTORS AFFECTING INTER INDUSTRY WAGE DIFFRENTIALS

1. Trade Union Strength: The Trade Unions have always been responsible for the designing of the wage structure which depends on the Trade Union Strengths which depends on the Number of Mandays lost as aresult of Strikes & Lockouts. Trade Unions that exist in a particular industry may pressurise the managements of various

plants or organizations within the industry making the wage pay of one industry differ from other.

2. Share of Labour in Value addition: The share of wages in the value addition has been falling over the years. The value that has been added is increasing tremendously but the wages & earnings have not been increasing correspondingly. Earlier Labour was a major factor in the production but the technological progress has dominated the scene. Even then the share of wages have not increased & fallen below the coresponding level of workers. SWG: Real Wages/ Real Valueadded

3. Capital Intensity: Thers has been increase in the use of capital these days in the industrial sector which has resulted in the value addition of these industries. Capital Intensive Techniques are bieng used by the Industry after the liberalisation of the imports by the GOI under new economic policy. Those firms who could not use the capital intensive technique were forced to shut down due to the heavy competeion from the capital intensive firms. Capital Intensity improves productivity thereby improving the wage Paiying Capacity of the Industry. Capital Intensity: Real Capital/ Diffrential

4. Price Cost Margin: Price-Cost Margin is yet another source inter-industry wage diffrentials. The Variable is the value added per unit of input used in different industries over the period under consideration.

5. Initial Level of Earnings: The Initial Level Earnings will enable the workers to predict the future earnings and is the source of inter industry wage diffrentials. It refres to the per man day earnings in1973-74.

6. Skill Growth: The Production workers are usally unskilled Labourers who are supervised by the skilled Workers i.e the non-productive workers. As the total non-Productive Workers increases there is said to be skilled growth.

7. Productivity: The final source of inter industry wage diffrentials is the productivity which means the labour Productivity & is the major source of Wage diffrentials.