Content Introduction 2 Literature Review 4 Analysis 6 Data Limitations 14 Conclusion 15 Bibliography. 16

Introduction

A wage differential or also known as wage gap is the difference between pay rates of two identical jobs or types of worker that happens because of different reasons. Generally, wage differential might be due to different factors as geographic location, education, gender, occupation, experience, age and so on.
Some argue wage differential might happen due to characteristics of employer and employee, even though other third parties effects also should be considered.
For instance, the following factors are said to be important for analyzing wage differentials between countries. Generally speaking, wage might differ due to different cost of living, region size, city size, race, gender, schooling level and etc. While comparing interregional pay rates between countries, slightly different factors are used, such as sex, occupation, gender, marital status, household size and average firms size. Several studies as it will be shown below had concluded that average firms size might be very important in determinant in wages, since firm operating with larger profits might pay higher level of salary, this phenomena was latterly explained as rent-sharing.
Limiting effect of wage differential, especially, when wage differential has a discriminative behavior, is very important for the Government. For instance, high level of wage differential between urban population and countryside population might result in interregional migration of workforce, in this case from rural areas to urban areas. Also, high level of difference of in wage rate between capital and other city of the country might result in outflow of labor force from regions to capital, overcrowding the capital, and creating deprivation situation in regions. According to Lee ’s theory of