Question

The traditional theory of wage determination holds that differences in wage rates can be explained by

Answer 1

Labor mobility. In markets, supply is represented by companies while demand is represented by customers. Its not the demand of the product that pays, it is the skill set of the employees that determines the their degree of pay. If you ask yourself why a retail sales person is paid less than a doctor, you will obviously note that the difference in their pay is their skill. Businesses look for profits, and skilled workers drive profitability high hence they get to be paid more than low skilled workers.