Identify the factors that cause wage differentials and explain them.

Wage differentials refer to the differences in wages paid to different workers — whether workers of similar skill in different places or industries, or workers of different skill in the same industry — and they arise for several reasons.

Identifying the factors:

1. The main causes are occupational differences, inter-firm differences, regional differences, inter-industry differences, personal differences, skill-based differences and experience-based differences.

Explaining the factors:

2. Occupational differences: jobs differ in the skill and responsibility they require, so wages differ across occupations, with risky or demanding jobs paying more.
3. Inter-firm differences: different plants in the same area and occupation pay differently because of differences in labour quality, equipment efficiency, managerial ability and firm size.
4. Regional differences: the same job pays differently across regions — for example, the Government of Nepal pays a remote-area allowance to employees serving in the hills to attract them there.
5. Inter-industry differences: the same occupation pays differently across industries depending on skill needs, the product market and the industry's stage of development.
6. Personal differences: wages may differ by age or sex — for instance, a woman is sometimes paid less than a man for the same work, despite the principle of "equal pay for equal work."
7. Skill-based differences: skilled and competent workers earn more than semi-skilled, unskilled or temporary workers.
8. Experience-based differences: experienced workers earn more than freshers, since experience brings expertise, quality and higher productivity.

Thus, wage differentials stem mainly from differences in occupation, firm, region, industry, personal characteristics, skill and experience, which together explain why wages vary so widely across workers.