Pay Scale Inequalities Do Matters

Pay scale inequalities do matters

The influences of pay scale inequalities comprised of not only internal firm features such as profitability, firm size, and industrial sector, but also external factors such as chronic stress, , social relations and hierarchy . Numerous scholars believes that the skill inclined technological changes are the main causative factor to the development of pay scale inequality(Autor et al., 1998; Acemoglu, 2002). This opinion obeys with the classical economics model of comparative advantages, which describes how the pay scale of workers affects their labor productivities. As a result, wage difference with in a firm is due to skilled and unskilled workers (Keane, 1993). There are two conflicting theories describing this issue. That are namely, the theory of “tournament” and theory of “equity” the tournament theory contends that larger pay scale inequality plays a motivational policy to inspire human activities (see Lazear and Rosen, 1981; Ehrenberg and Bognanno, 1990). pay inequality in other words positively promotes firm functioning as well. Whereas the theory of “equity” contends that the workers are likely to retract effort to the extent that they think their pay to be unfair. According to this theory workers tend to compare their pay scale with that obtained by others in their circle therefore there is always the risk of demotivating of the workers (see Martins, 2008; Akerlof and Yellen, 1990; Fehr and Schmidt, 1999).Inequality in pay scale in terms of equity theory have many negative effects to the firms performance and to the workers and their social life, such as

Chronic stress

With the diverging pay scale inequality there is likely to be development of feeling to the

Workers with wages low as compare to other that they have low social status which in turn

can produce physiological stress and worker with chronic stress cannot work with full

efforts and will ultimately leading to deteriorating performance of the firm and declining

health of the worker as a major influence to health comes from the psychological and

emotional influence of people’s social status

Social relations and hierarchy

People in a society with pay difference lead to inequality as a result people trust each

other less whether in a working environment or socially, therefore they are less likely to be

occupied in office environment and community life leading to higher rates of Income

inequality always develops scale of class differentiation