How Are Wages Affected By Segmented Markets And No Competing Groups?

Even in a competitive world where people could move easily from one occupation to another, substantial wage differentials would appear. These differences would be necessary to reflect differences in the costs of education and training or in the unattractiveness certain occupations or to indicate rewards for unique talents.

But even after taking into account all these reasons for wage differentials, we still find a large disparity in wage rates. The major reason for the difference is that labor markets are segmented into no competing groups.

A moment's thought will suggest that, instead of being a single factor of production, labor is many different, but closely related, factors of production. Doctors and mathematicians, for example, are no competing groups because it is difficult and costly for a member of one profession to enter into the other. Just as there are many different kinds of houses, each commanding a different price, so are there many occupations and skills that compete only in a general way. Once we recognize the existence of many different sub markets of the labor market, we can see why wages may differ greatly among groups.