Wage differentials exist between workers due to differences in ability, effort, occupation, and locality. Wages are usually higher in some localities than others primarily because of differences in cost of living. However, people are often reluctant to relocate for higher wages due to non-monetary costs like leaving friends and family, selling a home, changing schools for children, losing seniority or benefits. Occupational licensing requirements can also prevent workers from moving to a new area for higher pay if they need a new state license.

1. Wage Differentials Due to Locality
Compensation Management

2. Prepared By
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Manu Melwin Joy
Assistant Professor
Ilahia School of Management Studies
Kerala, India.
Phone – 9744551114
Mail – manu_melwinjoy@yahoo.com

3. Wage differentials
• The wage paid to workers
varies greatly. These wage
differentials are mostly the
result of differences in
worker ability and the
workers' effort in performing
the job.

4. Wage differentials
• There are also wage
differentials across
occupations, because of
differences in the demand
and supply of laborers for
particular job or occupation.
These differences arise
primarily because of
differences in the amount of
education or training
required and in the
desirability of the job itself.

5. Wage Differentials Due to Locality
• For any given type of job,
wages are usually higher in
one locality than in others.
Much of this difference is
because of differences in the
cost-of-living.

6. Wage Differentials Due to Locality
• However, most people are
reluctant to move because
they do not want to leave
their friends, sell their
house, be subjected to the
cost and uncertainty of a
new job in a new
community, and the children
may not want to change
schools.

7. Wage Differentials Due to Locality
• People may also be unwilling
to give up pension plans,
health insurance, or seniority
at their current job. Hence,
wage differentials in different
localities may persist, even if
people know that higher
wages can be earned
elsewhere.

8. Wage Differentials Due to Locality
• The requirement for
occupational licensing may
also be an impediment to
moving to a different area
for higher wages. Many
occupations require state
licensing, such as law and
medicine, so if a licensed
worker wanted to move to a
new state, she would have
to obtain a new license and
may have to satisfy
additional requirements.