Why do pop stars, footballers and stockbrokers earn such large incomes? Why, on the other hand, do cleaners, hospital porters and workers in clothing factories earn very low incomes?
The explanation for differences in wages lies in the working of labour markets. In the first part of the chapter we will consider how labour markets operate. In particular, we will focus on the determination of wage rates in different types of market: ones where employers are wage takers, ones where they can choose the wage rate, and ones where wage rates are determined by a process of collective bargaining.
In Section 5.4 we ask the more general question of why some people are rich and others poor, and consider the degree of inequality in our society: a society which includes the super rich, with their luxury yachts and their villas abroad, and people living in slum conditions, with not enough to feed and clothe themselves or their children properly; a society where people begging in the streets are an all too familiar sight.
The chapter closes with a consideration of what can be done to reduce inequality. Is the solution to tax the rich very heavily so that the money can be redistributed to the poor? Or might this discourage people from working so hard? Would it be better, then, to focus on benefits and increase the support for the poor?
