Third, a labour union may try to impose minimum wage rate by negotiating an arbitrary wage rate above the market level. (But this will lead to a surplus of workers and to the problem of preventing new entrants and unemployed workers from undercutting the agreed upon minimum wage rate.)

Reasons for income Differences

The income of a factor is determined by its market demand and supply. The greater the demand for labour and the smaller its supply, the higher the wage rate will be. Due to the difference in market demand and supply of different factors, income of different factors are different.

Factor demand can be affected by the productivity of the factor (determined by ability, training and experience), price of the commodity produced (depends on the demand and supply of the product, discrimination (against female, the minority, the young), etc.

Factor supply can be affected by the amount of capital accumulated, the size and structure of the population, geographical location, government policy and the bargaining power of trade unions, etc.

Compensation job riskiness; compensation to the difference in non-monetary benefits, prospect and working environment, etc.