Answer to Question #46605 in Economics of Enterprise for Rahul Kumar

Question

How wages are determined in the perfectly competitive market? Why do so many kinds of wage
Rates prevail in the market?

Answer 1

On the competitive labour market there are many companies competing with each other in the acquisition of labor services, on the one hand, and a large group of workers with the same qualifications and independently that offers some kind of employment services, on the other hand. And both sides need to agree with the price of labor services prevailing in the market (equilibrium price).
There are so many kinds of wage in the market because of the differences associated with supply and demand in different segments of the labor market. Since workers are heterogeneous in their skills, abilities, willingness to work in certain conditions, this leads to the individual productivity differentiation and differences in wages. In addition, there are significant differences in the attractiveness of the work: the unattractive labor manufacturers are forced to pay higher wages.