Determinants of Inter-Industry Wage Differentials
Determinants responsible for inter-industry wage differentials are:
1) Nature of Industry:
There are two kinds of industries i.e., service-based industry and manufacturing industry, and different types of products and services are produced by these industries. For example, manufacturing industries produce products, like - textile, steel, furniture, etc., whereas, the service-based industry provides services, like - call centers, hotels, transportation, etc. The nature of technology, process, and skill used in business differs from one industry to another.
The skills and the proficiencies of an employee are given more consideration in a service-based industry because the service industry entirely depends on the quality of services produced by the employees. On the other hand, the manufacturing industry produces goods and services which involve both machine and human interface.
In service industries, if an employee does not behave properly with customers, then the industry will lose its customers gradually, whereas in the manufacturing industry probability of losing customers depends on various factors, like cost, service, quality, etc.
Thus, for these industries loss of customers is lower than in the service industry. Therefore, due to people-oriented approaches, the wages of employees in the service industry are more than in the manufacturing industry.
2) Knowledge-Based Work:
In comparison to other industries, the knowledge-based business, like, pharmaceuticals, IT, advertising and marketing, etc., require a qualified, experienced, and talented workforce who demand high salaries and wages.
Since the survival of this industry entirely depends on the skill and competency of the employees, thus these industries offer high pay packages to their workforce. On the other hand, to survive, the forging industries need less skilled or even unskilled workers. Since these forging industries need lower skill, thus, the compensation offered by them is also lower.
3) Technology Employed:
Technology plays a crucial role in the industry. Advanced and modern technology is used by some industries, whereas other industries use traditional and primitive technology. Different industries involved in manufacturing highly sensitive products, like CD and processor chips operate in an automatic and controlled environment. Whereas, forging industries use old or low-level technology which is mostly operated manually.
Therefore, organizations that are automatic involve employees in lesser numbers but with high knowledge and talent. Thus, the wages and salaries of these employees must be very high. On the other hand, the forging industry requires employees in abundance, but they offer a lower level of salary and wages.
4) Level of Skills and Competencies:
The level of skill and competency needed for carrying out jobs differs from industry to industry. When the industry adopts new or advanced technology then the need for a new set of skills and competencies raises. Sometimes several skilled employees have to keep on premium which influences the market condition and organization's current compensation policy.
When organization train and develop employees within the organization then it would lead to payment for additional competencies as a competency-based pay. Therefore, the gap in the competencies and skill of the workforce for producing CD or processor chips in organizations, like Moser-bear in comparison to any other forging industry will be important. Hence, compensation varies according to differences in competencies and skills needed for performing the job.
5) Quality of Personnel:
A number of industries use a labor-oriented approach towards production, business cycle, and technology used. For example, industries operating in the export of garments, use lower technology, and a large workforce, thus, they are able to control cost and keep products cheap.
Additionally, the cyclic nature of demand for the product makes these organizations poor paymaster. Whereas industry, like biotechnology recruit, qualified and skilled professionals, and they pay high compensation to attract and retain such skilled and qualified employees.
6) Sector:
There are two sectors under which industries are classified first, organized, and second unorganized sector. Business, like, utensil manufacturing, candle making, bangle making comes under the unorganized sector. The characteristics of these industries are - lower availability of resources, little profit margin, old technology, and poor compensation to employees.
On the other hand, industries, like electronic items manufacturing, vehicle manufacturing, etc., come under the organized sector. The basic characteristics of these industries are - high availability of resources, better infrastructure, and high compensation to employees. Thus, differences in sectors create compensation differences.
7) Competitive Strategy:
Labor-intensive industries follow cost leadership strategies. For example, the textile industry, in order to keep their production cost low, employs a high number of the employee during their peak period, whereas they reduce the number of employees during the off-season.
The compensation policies of the organization are connected with its strategic objectives; hence, the compensation of employees is kept low. Further, capital focus industries like IT, pharmaceutical, etc. works on wage differentiation strategy as their fundamental competency. Therefore, the wages and salaries of these employees are high as compared to the labor-intensive industry.