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Wage Discrimination

Paying different wages for same input (labour) depending upon different elasticities of supply of the input (labour) in the factor (labour) market where the monopolist buyer rules.

The former has reference to the product price and the latter has reference to the factor price. Such discrimination is practiced on the basis of age, sex, location, etc., of the buyer or the seller and there are different degrees of discrimination

1. When a price can be charged for n buyers, without leaving any consumer’s surplus for anyone, it is 1^st degree price discrimination, e.g., tailor made products.

2. When prices are changed in blocks, two or few (say P₁ and P₂), leasing some consumer’s surplus with the buyer, it is 2^nd degree price discrimination, e.g., block rate setting printing cards.

3. When n prices are changed for n classes of customer, leasing it to the customer to choose their class, it is 3^rd degree price discrimination, e.g., power tariff, residential and commercial.

Parallel to this, one can think of similar degrees of wage discrimination.

Such discriminating monopoly or monopsony are possible only when (a) there is no seepage between different markets (market segments) and (b) there are differences in elasticities. (Higher the degree of inelasticity of demand, higher can be the price changed by a discriminating monopolist, in the same way, higher is the degree of elasticity of supply of labour, lower can be the wage rate for labour.