Exercises: Wage differentials and the minimum wage

Explain three reasons why some jobs are better paid than others — qualifications and training, level of responsibility, hardship or danger, scarcity of qualified people — and give a real occupation as an example of each.

On the payslip of his first job, Alex sees: gross salary $1.300\ \text{€}$, Social Security contributions $85\ \text{€}$, income tax (IRPF) withholding $90\ \text{€}$.

1. a) Calculate the net salary he will receive in his bank account.
2. b) Explain in one sentence what contributions are: what are they paid in exchange for (unemployment, pensions, healthcare)?

The figure shows the average monthly salary in the imaginary country of Laboria according to education level: no qualifications, $1.100\ \text{€}$; vocational training or upper secondary (Bachillerato), $1.400\ \text{€}$. The figure for university graduates is covered, but it is known that they earn on average $50\ \%$ more than the previous group.

1. a) Calculate the average salary of university graduates, which is the missing figure.
2. b) Explain two reasons why salary usually increases with level of education (more training, greater responsibility, fewer people qualified for certain roles).

Every payslip has three zones: the earnings (what you earn: basic salary, allowances, extra payments), the deductions (contributions and income tax) and the net pay (the net, what reaches the bank).

1. a) Place each item in its zone: night-shift allowance, income tax withholding, basic salary, Social Security contribution, net salary.
2. b) Explain why the gross and the net never match.

Part of the pay can arrive 'in kind': things the company pays for instead of money, like the company car, medical insurance, meal vouchers or a free canteen.

1. a) Give three examples and explain why they are called benefits in kind.
2. b) Argue what advantage they have for the worker (in some cases they are taxed less, convenience) and one disadvantage (you can't choose: maybe you would rather have the money).

The collective agreement is the deal negotiated by the trade unions and the companies of a sector: it sets minimum wages by grade, working hours, breaks and allowances.

1. a) Explain what it is and who signs it.
2. b) Argue why one worker alone negotiates from a weak position against their company and what changes when everyone negotiates together (collective bargaining).

Two companies offer the same annual salary of $16.800\ \text{€}$: one pays it in $12$ monthly instalments and the other in $14$, with two extra payments in summer and at Christmas.

1. a) Calculate the monthly amount in each case.
2. b) Check that the annual total is the same and argue which system would organise your money better (more each month or two 'treats' a year?).

Besides the basic salary, many payslips add allowances: for length of service, for night work, for dangerous work, for languages. Explain what each one rewards with an example job (a night-shift operator, a technician who certifies her English, a worker with $20$ years in the company) and argue why companies use them to retain and motivate their people.

The statutory minimum wage (SMI) is the legal floor: no full-time worker can be paid less. In Spain, it is around $1.184\ \text{€}$ gross per month spread over $14$ payments.

1. a) Calculate the annual minimum wage.
2. b) A shop offers a full-time job for $1.050\ \text{€}$ per month across $12$ payments: calculate the annual total and explain whether the job offer is legal.

In the same town, an industrial electrician with a robotics certificate earns $2.300\ \text{€}$ per month, while a shop assistant earns $1.300\ \text{€}$.

1. a) Using the factors covered in the unit, explain why the market pays the electrician more (lengthy training and few people holding that certificate).
2. b) Reason what would happen to that salary if there were suddenly many electricians with the same certificate while demand remained the same.

Two full-time job offers: (A) gross salary of $1.600\ \text{€}$ with $150\ \text{€}$ in deductions; (B) gross salary of $1.450\ \text{€}$ with $70\ \text{€}$ in deductions and free canteen meals valued at $100\ \text{€}$ per month.

1. a) Calculate the monthly net salary for each offer and add the value of the canteen meals to Offer B.
2. b) Which would you choose? Justify your choice using the numbers and at least one non-monetary factor (working hours, commute distance, work environment).

Company A offers $1.500\ \text{€}$ gross in $12$ payments; company B, $1.250\ \text{€}$ in $14$ payments plus $100\ \text{€}$ a month in meal vouchers.

1. a) Calculate the annual total in money of each offer and the annual value of the vouchers.
2. b) Which is better? Justify it with the numbers and with one non-monetary factor (hours, distance, what they will teach you).

The statutory minimum wage (SMI) is for full-time work: around $1.184\ \text{€}$ gross a month in $14$ payments.

1. a) Calculate the minimum a person hired part-time (half-time) must be paid a month.
2. b) A shop chain offers $4$-hour contracts at $500\ \text{€}$ a month in $12$ payments: calculate the annual total, compare it with what the law requires (half the annual SMI) and say whether the offer is legal.

The shop assistant Marta, with a gross of $1.300\ \text{€}$, works $6$ hours of overtime this month at $12\ \text{€}$ an hour.

1. a) Calculate her gross for the month with the overtime.
2. b) Explain why overtime is paid more dearly than ordinary hours (it compensates lost rest and deters the company from abusing) and what alternative some collective agreements include (taking the hours as rest later instead of being paid for them).

It's time to negotiate your first pay rise at the shop where you have been working for a year. Prepare the meeting:

1. a) Write three arguments based on your work (with facts: 'I ran the Saturday shift on my own', you learned the till and the stockroom, zero complaints) and explain why they work better than 'I need the money'.
2. b) Prepare your plan B if they say no (asking for training, an allowance, talking again in six months).

When a company pays you $1.500\ \text{€}$ gross, you cost it more: it also contributes around $450\ \text{€}$ to Social Security for you.

1. a) Calculate the total monthly cost of the worker for the company.
2. b) Explain the difference between what you take home (net), what appears on your payslip (gross) and what the company pays (total cost), and argue why those 'invisible' contributions are also part of your salary (they fund your healthcare, your unemployment benefit and your future pension).

The government plans to raise the Minimum Interprofessional Wage (SMI) by $10\ \%$. Faced with this announcement, two opposing stances emerge: a hospitality business association claims that the measure will cause massive layoffs and drive up prices in the sector, while a trade union argues that the increase will boost aggregate demand and generate net employment because low-income families will spend that money immediately.

1. a) Using the functioning of the labor market and the concept of marginal propensity to consume, analyze the economic mechanisms that support each of the two stances and explain under what real economic conditions each effect would carry more weight.
2. b) Design a monitoring protocol for the Ministry of Labor with two specific economic indicators that make it possible to assess, after six months, whether the increase has had a contractionary or expansionary impact on employment and the price level in the services sector.

A labor audit at a large services company reveals that the average wage of female staff is $14,5\ \%$ lower than that of male staff. However, the Human Resources department demonstrates with payroll records that for every single position, exactly the same base salary is paid to men and women in the same category.

1. a) Resolve the apparent contradiction: explain what structural economic and labor factors (horizontal and vertical segregation, salary bonuses, contract type, and family burdens) explain the existence of this average wage gap without there being a direct violation of equal pay laws for the same position.
2. b) The company plans to allocate its equality budget to offer a voluntary assertiveness and salary negotiation course exclusively for female employees. Critique the effectiveness of this measure and design two organizational labor policies that address the true causes of the gap identified in the previous section.

In a shopping mall, two sales assistants work in the same department and with the same duties:

• Marcos has a full-time contract ($160$ hours per month) and earns a gross monthly salary of $1.280\ \text{€}$.

• Laura has an involuntary part-time contract ($80$ hours per month) and earns a gross monthly salary of $720\ \text{€}$.

1. a) Calculate the gross wage per standard hour for each of them and determine whether there is wage discrimination based on the unit price of labor.
2. b) Marcos argues to his colleagues: "I earn almost twice as much as Laura, so the company values my work much more." Refute Marcos's argument using the concepts of hourly pay and working hours, and explain what medium- and long-term economic harm Laura suffers by being on an unwanted part-time schedule (consider saving capacity, Social Security contributions, and future unemployment or retirement benefits).

You are offered your first two job opportunities after completing your studies:

• Offer A: $1.600\ \text{€}$ gross per month ($12$ payments). On-site work with a split shift ($9:00$ to $14:00$ and $16:30$ to $19:30$). Distance of $45$ minutes by public transport (travel pass cost: $55\ \text{€}$ per month). Being unable to go home for lunch, you estimate an average expenditure of $9,50\ \text{€}$ per meal on working days ($21$ days per month).

• Offer B: $1.430\ \text{€}$ gross per month ($12$ payments). Continuous intensive workday ($8:00$ to $15:30$), with two days of remote work per week. Distance of $10$ minutes on foot (transport cost: $0\ \text{€}$). Includes certified technical training funded by the company valued at $1.200\ \text{€}$ per year.

1. a) Assuming an average withholding (social security contributions and personal income tax) of $12\ \%$ on the gross salary for both offers, calculate the net monthly disposable income after deducting the unavoidable expenses associated with the position (transport and mandatory food costs).
2. b) Apply the concepts of "opportunity cost", "emotional salary", and "human capital" to justify in a reasoned manner which offer you would choose if your medium-term strategic priority is to maximize your professional development and overall well-being.

Following the publication of the salaries of major sports stars, we read in an online debate: "It is a moral disgrace that a First Division footballer earns in a weekend what an emergency room doctor takes four years to earn; this proves that the free market has no economic logic." Carry out a technical analysis of this statement:

1. a) Explain the wage difference using the tools of labor microeconomics: labor supply and demand, relative scarcity of specific talent, audience size, and labor productivity measured by the marginal revenue generated by each professional for their employer.
2. b) Distinguish precisely between the "market price of the labor factor" and the "intrinsic social value of an activity." Argue whether the State should intervene by setting a legal maximum wage for high-earning professions and evaluate the consequences that such a measure would have on brain drain, tax evasion/fraud, and tax revenues compared to an alternative based on progressive income taxes.

In a household, two adults and two minors live together. One of the adults has paid full-time employment, earning a net monthly salary of $1.550\ \text{€}$. The other adult is dedicated full-time to unpaid domestic and caregiving tasks, spending an average of $35$ hours per week on them.

1. a) Calculate the monthly market cost of hiring external personnel to cover those $35$ weekly hours at a rate of $10,50\ \text{€}$ per hour (assume months of $4,3$ weeks). Compare this amount with the household's formal net salary and deduce what percentage of the family's real resources comes from unpaid work.
2. b) Justify why the System of National Accounts excludes these tasks from the official calculation of Gross Domestic Product (GDP), and analyze the economic biases that this exclusion causes when assessing productivity and the female labor force participation rate.
3. c) Design two complementary public policies (one of a fiscal or transfer type, and another of universal public services) aimed at reducing the precariousness and economic dependency of individuals devoted exclusively to unpaid family care.

A young, newly independent person earns the Minimum Interprofessional Wage (SMI), with a prorated net monthly paycheck of $1.150\ \text{€}$. Their minimum monthly survival expenses in an average city are: $520\ \text{€}$ for renting a room including utilities, $240\ \text{€}$ for a basic food basket, $55\ \text{€}$ for transportation, and $85\ \text{€}$ for indispensable medical expenses and basic clothing.

1. a) Calculate the percentage of net salary absorbed by fixed and unavoidable expenses, and determine their monthly savings capacity. If the price of room rent increases by $10\ \%$ and inflation drives up the food basket by $5\ \%$, calculate by how much their monthly economic margin is reduced if their salary remains constant.
2. b) Based on the results obtained, critically evaluate whether the SMI currently fulfills the principle of the Workers' Statute of guaranteeing a decent and sufficient standard of living in urban environments.
3. c) Contrast two economic measures to address the financial vulnerability of this group: an increase in the SMI by decree versus a policy of rent control or housing assistance. Predict one benefit and one unforeseen detrimental effect of each of the two measures on the market.

The statistical analysis of the labor market in an autonomous community shows the following average gross monthly wages by age bracket:

• Bracket 1 ($16$ to $24$ years old): $1.080\ \text{€}$

• Bracket 2 ($25$ to $34$ years old): $1.520\ \text{€}$

• Bracket 3 ($35$ to $54$ years old): $1.960\ \text{€}$

• Bracket 4 ($55$ to $64$ years old): $2.240\ \text{€}$

1. a) Calculate the relative wage gap between the youngest and oldest brackets expressed as a percentage of the young workers' wage. Next, calculate the percentage wage increase between bracket 1 and bracket 2, and compare it with the increase between bracket 3 and bracket 4. What does the evolution of these rates tell us about the pace of human capital revaluation over the course of a working career?
2. b) Explain why this pay disparity does not solely reflect differences in workers' actual productivity: analyze the impact on these data of contractual duality (temporary employment rate by age) and consolidated seniority wage supplements established in collective bargaining agreements.
3. c) If a labor reform were to suddenly eliminate seniority supplements to make senior hiring cheaper and encourage youth employment, predict what direct and indirect effects it would have on the real wages of young people, the cost of dismissal, and the incentive to remain at companies. Design a more balanced economic policy alternative.

Topic Challenge. Imagine you are working as a junior economic adviser and need to prepare a proposal to improve youth labour market integration in your autonomous community.

1. Data collection (INE): Go to ine.es (EPA section) and note down the youth unemployment rate (under 25 years old) and the overall unemployment rate for your community (expressed with a decimal comma, e.g., $26,4\%$ versus $11,2\%$). Also check the current National Minimum Wage (SMI) in Spain ($1.134$ € per month in 14 payments).

2. Economic diagnosis: Design a comparative table and write a brief analysis identifying which types of unemployment (frictional, structural, seasonal, or cyclical) affect young people the most and two of their socio-economic consequences. In addition, justify why wage differences exist based on qualification and productivity levels.

3. Reasoned proposal: Write an executive report (maximum one page) with two realistic measures to promote youth hiring, critically assessing whether the current level of the SMI acts as an incentive or as a barrier to entry for recent graduates.

Evaluation criteria:

• Accurate retrieval and correct tabulation of official INE data.

• Precise identification of the types and consequences of unemployment, as well as the causes of the wage gap.

• Coherence and sound economic reasoning in the debate on the SMI and the proposed measures.