What is wage differentiation?

What it is?

According to the provisions of Article 129 of the Labor Code of the Russian Federation, the amount of remuneration should depend on the qualifications of the employee and the characteristics of the work he performs. Thus, the differentiation of wages is the tariff scale adopted in a particular institution for employees at different levels.
It should include salary and incentive payments. The question of how much to pay an employee for a certain position depends on the financial capabilities of the company and the desire of management.

It is necessary to understand that there is no ideal system of income differentiation. Therefore, workers periodically quit in order to get a job at another company, where the salary for similar work is higher. To retain qualified and experienced specialists, you need to closely monitor the state of the labor market.

If it is difficult to find the necessary employees, then it is worth increasing their salaries so that they do not have the desire to leave for another company. However, the factors that influence wage differentiation are more complex.

Causes and consequences of rate differentiation

There are several factors that influence rate differentiation. It is worth considering them in more detail.

It is worth noting that the differentiation of rates in the country and in the world affects:

• labor migration;
• the popularity of a particular profession in the labor market;
• unemployment rate;
• the speed of industry development and so on.

Expert opinion

Irina Vasilyeva

Civil law expert

The salary may differ between employees of the same enterprise and among employees of different companies who work in the same positions. This is the basic principle of wage differentiation.

WAGE DIFFERENTIATION IN RUSSIA: CAUSES AND CONSEQUENCES

The main source of income for the population is wages. Due to the nature of the activity, different levels of education, qualifications and other reasons, the wages will be different for different employees. The establishment of different levels of remuneration for workers, taking into account various factors and incentives, is called wage differentiation [2].

Differentiation plays a significant role in the country’s economy and in the life of society, causes income inequality among the population, and also directly affects the standard of living. It is important to control this process, since very high differentiation will entail a significant gap in the incomes of citizens and will cause dissatisfaction among people; at the same time, very low differentiation will deprive people of motivation to work and the desire to develop and achieve new successes.

A sufficient number of Russian scientists have been studying the issues of wage differentiation, as well as considering the factors and reasons influencing this process, among which are the publications of R.I. Kapelyushnikova, S.Yu. Roshchina, T.O. Razumovki, N.A. Volgina and others. Among Western scientists who have made an invaluable contribution to the study of this problem, one can highlight F. Quesnay, J. M. Keynes, S. Kuznets, J. Laycon, W. Lewis, K. Marx, A. Marshall, J. Marchal , A. Müller-Armack, D. Laarlberg, D. Ricardo, P. Samuelson, S. Sismondi, A. Smith, J. Tinbergen, A. Turgot, M. Friedman. However, it cannot be said that the problem of wage differentiation has been fully studied. A number of aspects of this problem remain insufficiently developed due to the changing socio-economic situation in the country. It is this, as well as the significance of this issue for the country’s economy, that determines the relevance of the chosen research topic.

For modern society, wages are of great importance. It is of interest both to workers and employers, and to the state. For the state, it is important to increase the well-being of citizens, which is achieved by increasing wages. For employers, remuneration is designed to stimulate employees and thereby ensure high labor efficiency, as a result of which the company’s profits will increase. Hired workers are interested in increasing their wages, since it ensures the satisfaction of his needs, as well as the needs of his family.

Wages (employee remuneration) - remuneration for work depending on the qualifications of the employee, complexity, quantity, quality and conditions of the work performed, as well as compensation payments (additional payments and allowances of a compensatory nature, including for work in conditions deviating from normal, work in special climatic conditions and in areas exposed to radioactive contamination, and other compensation payments) and incentive payments (additional payments and incentive allowances, bonuses and other incentive payments) [3].

An important aspect in the issue of wages is their differentiation. It represents the difference in the levels of remuneration of workers under the influence of various factors [2]. These factors can be divided into the following groups:

• demographic (gender, age, appearance, abilities, etc.);
• professional (profession, specialty, education, qualifications, experience, level of professionalism, etc.);
• social status (employee, involved in the execution of a contract, entrepreneur, self-employed, free profession, etc.);
• socio-economic (occupation or activity, industry, working hours, working conditions, etc.);
• socio-geographical (natural and climatic features of the place of work, its territorial isolation, density and character of settlement, national characteristics);
• socio-political (political stability in the region, level of development of social infrastructure, etc.) [1].

Note that the first four groups relate directly to the individual, and the last - to the region. All these factors, one way or another, affect the amount of wages, so it is necessary to consider them in more detail.

Speaking about demographic factors, we can say that depending on gender, age, etc. People have different income levels because, due to these characteristics, people do not have the same opportunities for work (young people can do more work than older people, women cannot do hard work that men can do, etc.). Demographic factors also include individual abilities, which directly affect wages. A more capable (for example, hardy) person has the opportunity to receive a higher salary due to the fact that he can work more.

Professional factors are of great importance. Any profession requires certain skills and abilities - some more, some less. Depending on the specialty, a person must have a certain level of qualifications. It has a direct impact on the amount of remuneration. Here we are talking about having a certain education, experience, etc.

The third group of factors is related to the previous two. A person's status is determined by his place in society. It directly depends on both the personal qualities of a person and his professional skills, education, qualifications and position.

The fourth group of factors – socio-economic – has the most significant impact on the level of wages. The primary influence is exerted by the type and type of activity, then by employment options (combining any forms, time of employment, for example, which leads to an increase in cash receipts), sector of the economy, working conditions (for example, wages in conditions different from normal, higher ) etc.

Socio-geographical factors mainly include natural and climatic conditions. The vast territory of the Russian Federation and various natural conditions determine unequal levels of wages in the regions. Also, wages depend on the industry that predominates in the region (for example, in regions where the mining industry predominates, wages are higher than in agricultural regions).

In addition, socio-political factors also influence differences in wage levels. For example, the political stability of different regions differs for certain reasons. This affects the level of wages in the region, and therefore wages across regions of the country will not be the same.

The level of education determines not only economic growth and the position of the state on the world stage, but also the success of a person, his career and place in society. This is one of the most important criteria determining the amount of wages. Let's consider the level of wages by level of education in Russia from 2005 to 2013. (Table 1).

Table 1

Average accrued wages of employees by level of education

(based on the results of sample surveys of organizations for October; rubles)

Source: [4]

Based on the data in the table, we can conclude that people with higher education received higher income during the period under review. Their income in 2007 compared to 2005 increased by more than one and a half times, then the growth rate decreased until 2011 (there was an increase in wages by 37% and 23%), and in 2013 it began to increase again, wages increased by 28% and amounted to 38,233 rubles.

It can be seen that the level of wages for all groups of workers has increased steadily since 2005. If we compare the wages of these groups of workers in 2005 and 2013, we can see that the wages of workers who do not have a basic general education increased the most during this period - from 5,772 rubles. up to 19850 rub. (i.e. 3.44 times), increased slightly less for workers with basic general and higher education (3.37 and 3.36 times, respectively). Wages increased the least among workers with primary vocational education (less than 3 times).

This table shows how much the level of education affects wages. Thus, in 2013, the average salary of an employee with a higher education exceeds the salary of an employee without education by almost 2 times.

Let's consider the level of wages for various professional groups from 2005 to 2013.

table 2

Average accrued wages of employees by professional groups

(based on the results of sample surveys of organizations; rubles)

Source: [4]

It is obvious that the highest income among all groups of workers is among the heads of organizations and their structural divisions. Their wages are 2 times higher than those of mid-level specialists and almost 4 times higher than those of unskilled workers.

If you look at the change in the level of wages in 2013 compared to 2005, then it grew most strongly among mid-skilled specialists - from 7201 to 25848 rubles (3.6 times), least of all - among unskilled workers - by 2. 8 times.

Based on the data in table. Table 2 shows that wages differ significantly depending on the professional groups of workers.

Based on the results of the study, it can be noted that wages are an integral part of modern society. Due to the influence of many factors, the wages of different workers vary. People who have a higher level of education, are more capable and talented, and have the necessary set of qualities and characteristics for a given type of activity will always have a higher income.

Differentiation has both positive and negative sides. On the one hand, this is an incentive for growth and development, motivating people to achieve success, and on the other hand, a significant gap in citizens’ incomes has a bad effect on people’s morale and creates inequality in society and poverty. It is very important to regulate the process of differentiation in order to control its negative consequences. It is for this purpose that such means of combating income differentiation as progressive taxation, increasing the minimum wage, the cost of living and social benefits are used.

The problem of wage differentiation exists not only in Russia. Based on the experience of Western countries in combating the problem of differentiation, we can propose a way to regulate wages in the country as the transformation of monopoly capital into share capital. This will contribute to a significant increase in ownership. The greater the number of owners with the same amount of total income, the less will be the income of each of them. This will make it possible to regulate, to some extent, the difference in the incomes of citizens, thereby smoothing out the problem of differentiation.

List of literature:

1. Mazmanova B.G. Remuneration and labor relations in Russia and abroad: textbook. allowance / B.G. Mazmanova. - M.: Business and Service, 2010. - 432 p.
2. Dictionary of business terms [Electronic resource] - Access mode: https://dic.academic.ru/dic.nsf/business/3747
3. Labor Code of the Russian Federation dated December 30, 2001 N 197-FZ (as amended on December 1, 2007 N 309-FZ).
4. Federal State Statistics Service [Electronic resource] - Access mode: https://www.gks.ru.

Payment systems

There are various ways to reward employees for effective work. How well an employee will work depends on the chosen method of motivation. It is worth considering in more detail the basic principles of salary formation that are used in practice.

Time-based

The variable type of remuneration is used for employees who work in the field of office work. These are secretaries, government officials, judicial office specialists and many others.
The functioning of the company depends on the performance of their functions, but their work does not affect profit. Thus, this is the optimal payment system for such employees. You are required to work a certain number of hours to receive a salary. In this case, no bonus is expected.

If the company receives excess profits, then additional payments are allowed. To evaluate performance, various testing systems or subjective assessments may be introduced that will not be used in other companies.

Piecework

Piece-rate wages assume that the employee receives money directly for production, so accrual occurs for:

• volume of sales;
• quantity of goods produced;
• the number of concluded contracts, and so on.

It is worth understanding that with such a remuneration system there is no salary or it is minimal. At the same time, there is a minimum production plan. If an employee does not fulfill it, he receives a minimum wage.

Some firms hire part-time workers to reduce their costs. This reduces tax costs and allows you to lower your minimum plan.

Tariff

In this case, the employee receives the salary specified in the contract. This is a fixed amount that does not depend on the employee’s performance. However, bonuses are allowed at the discretion of management. The main advantage of such a scheme is the availability of a guaranteed rate or salary. However, it is recommended to apply this scheme to employees whose activities do not affect the organization’s profit.

Tariff-free

This type of payroll depends each month on the size of the salary fund and on the success of the enterprise as a whole. That is, at the end of the month it is necessary to analyze who worked better.

He is provided with increased payments in the form of salary and bonus. Employees who perform the worst receive the minimum wage or another amount established by the enterprise.

On a commission basis

This scheme is often used when selling a franchise. However, it is also often used when motivating employees. The bottom line is that the employee receives a certain commission from each successful transaction. For example, a company sells insurance contracts. The employee enters into agreements with clients and receives a commission from 1% to 30%, depending on the organization and the characteristics of the cooperation. The more successful transactions, the higher the final salary.

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Factors of differentiation

Establishing a particular salary level is based on a number of factors that can be divided by importance into several groups.

Market factors

1. The “demand/supply” ratio of certain labor markets reveals the most obvious and basic dependence of different wage rates. A market oversaturated with certain specialists will force their salaries to be lower, while rare professions that are in demand are traditionally paid highly.
2. Investments in “human capital” show different quality of the workforce, and consequently, wages.
3. The minimum wage is the minimum wage set by the state; it is the basis for many calculations regarding wages, that is, it determines its size.

Personal factors

1. Demographic differences – different levels of pay depending on gender, age, race, nationality, appearance and other similar qualities. This does not mean different rates for people, for example, of different ages, but the fact that these properties give people different abilities to work. For example, hard physical work is not available to women, young people are able to work longer than older people, but do not have such experience, etc. As a result, people with different characteristics can expect different levels of pay for their work.
2. Professional issues – directly related to paid activities, for example:
   education;
3. experience;
4. qualification;
5. category;
6. experience;
7. specialization, etc.
8. Social – related to the status of the individual in society. A person chooses a way to earn money based on the first two groups of factors - personal and professional characteristics. Employees of one or another professional status will have different levels of remuneration:
   entrepreneur;
9. employee;
10. executing the contract;
11. freelancer;
12. self-employed, etc.
13. Economic features affect the level of wages more significantly than others, since they are directly related to market factors:
    industry of work;
14. occupation;
15. employment options – full-time, hourly, part-time, etc.;
16. working conditions (normal or difficult).

1. Geographical – climate conditions and natural features in which you have to work. The territory of the Russian Federation is vast and diverse, which determines the heterogeneous level of salaries in different regions.
2. Industry - depending on which industry is leading in a particular region, the salaries of its residents will differ. For example, agricultural regions produce less profit than mining regions, so workers are not paid equally.
3. Socio-political - factors that demonstrate the general standard of living in the country and separately in the regions. For example, political stability in different parts of the Russian Federation varies for a number of reasons, which also affects employment and wages. The cost of living also varies in different parts of the country.
4. Institutional – associated with restrictions imposed by public institutions: trade unions and other organizations. For example, trade unions of individual workshops set a limit on membership in order to reduce the movement of workers to other regions where wages are higher - after all, they will not be accepted into the union there.
5. Internal – related to the organization of work at the enterprise itself:
   salary policy;
6. availability and features of financial incentives;
7. working conditions and concern for their improvement;
8. social guarantees, etc.

Correct selection of the optimal system

There is no ideal wage system in Russia and in the world. It is necessary to use several types in order to retain qualified specialists and get rid of those who are not ready to give their best.
So, in the sales department you should not set a high salary, since employees will try to fulfill only the plan. There will be no need to work beyond the norm unless the salary increases slightly. Those who do not want to work will leave because of the low salary. But experienced specialists who know how to sell can earn a lot from bonuses.

Employees responsible for document management must set a fixed amount. At the same time, it is necessary to carefully monitor the labor market so that the salary level remains average. Workers begin to quit when they realize that other companies can earn more for performing the same functions.

In production, it is worth using accruals that depend on output. In this case, you need to take into account the approximate profit from the products produced in order to understand how much you can charge for one unit of goods.