Google
Sunday 
October 22, 2017 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
ELASTICITY AND SUPPLY INTERCEPT: The intersection of a straight-line supply curve with vertical price axis and/or horizontal quantity axis reveals the relative price elasticity of supply. Intersection with the horizontal quantity axis means inelastic and intersection with the vertical price axis means elastic. Intersection with the origin means unit elastic supply.

Visit the GLOSS*arama


COMPENSATING WAGE DIFFERENTIALS:

Different wages paid to different workers or in different markets that adjust for differences in the jobs or in the productivity of the workers. Wage differentials occur for many reasons. Quite often they are the result of the personal preferences of workers. In some cases workers are willing to "buy" leisure-time or other types of household production by taking lower wages. Differences in job risks, education, and location are also reasons for the persistence of wage differentials.
Wage differentials observed in the labor market are often compensating wage differentials. Some employers find it necessary to pay higher wages to compensate workers for dirty, dangerous, and generally undesirable working conditions. Other employers can pay less for comparable work because conditions are more pleasant.

Three reasons for compensating wage differentials are worth noting:

  • Risk and Hazardous Conditions: Jobs that are riskier, more dangerous, and have a greater likelihood of injury, typically pay higher wages. For example, coal miners, deep sea divers, and security guards are likely to be paid higher wages than similar jobs due to the hazardous nature of their duties.

  • Education and Skill: Jobs that require more education, skill, and training also tend to pay higher wages. Higher wages compensate for greater productivity and provide returns on investment in education and training.

  • Location: Jobs that are at undesirable, more distant, or hard to reach locations also pay higher wages. Firms in cities that have high living costs, inhospitable climates, high crime rates, or other "disamenities" find it necessary to offer higher wages to attract workers.
Compensating wage differentials have an important allocative function for the economy for two reasons:
  • First, they provide incentives for people to undertake less desirable work. If society decides that resources need to be allocated to production that involves undesirable work, then compensating wage differentials are necessary. Without extra wages, this work is not done.

  • Second, they provide incentives for employers to reduce the undesirable nature of the work. If otherwise identical firms have different working conditions, then one is forced to pay higher wages to attract workers. Higher labor cost encourages employers to improve working conditions to remain competitive.
As long as workers have complete information about the risks and hazards of a job and are free to choose between different employers, then compensating wage differentials are allocatively efficient. This is important in terms of government worker safety regulations--primarily undertaken by the Occupational Safety and Health Administration (OSHA).

A key function of OSHA is to reduce the amount of risk that workers face. However, some workers undertake more risky jobs to receive higher compensating wages. If the amount of risk is reduced, then so too are the wages (and presumably the welfare) of these workers. By attempting to help workers, OSHA can actually make them worse off.

Of course, if the labor market is not competitive and does not have well-informed workers, then job-related risks do not generate compensating wage differentials. Such is the case for jobs that use new and untested technologies. For example, the risks of coal mining and deep sea diving are well known and generate relatively high compensating wages. However, the risks of working for extended periods with computer video screens or recently developed chemicals are not yet known.

While wage differentials can enhance efficiency, they can also inhibit efficiency. When caused by discrimination, union market power, or government policies, wage differentials create inefficiencies in the economy.

<= COMPARATIVE STATICSCOMPENSATION OF EMPLOYEES =>


Recommended Citation:

COMPENSATING WAGE DIFFERENTIALS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2017. [Accessed: October 22, 2017].


Check Out These Related Terms...

     | monopsony, minimum wage | monopsony, factor market analysis | perfect competition, factor market analysis |


Or For A Little Background...

     | factor payments | government functions | factor market analysis | marginal revenue product | incentives | employment | efficiency |


And For Further Study...

     | bilateral monopoly | bilateral monopoly, factor market analysis |


Search Again?

Back to the WEB*pedia


APLS

PINK FADFLY
[What's This?]

Today, you are likely to spend a great deal of time at a crowded estate auction hoping to buy either a key chain with a built-in flashlight and panic button or a green and yellow striped sweater vest. Be on the lookout for neighborhood pets, especially belligerent parrots.
Your Complete Scope

This isn't me! What am I?

The portion of aggregate output U.S. citizens pay in taxes (30%) is less than the other six leading industrialized nations -- Britain, Canada, France, Germany, Italy, or Japan.
"A stumble may prevent a fall. "

-- Margaret Thatcher, British prime minister

AGI
Adjusted Gross Income
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2017 AmosWEB*LLC
Send comments or questions to: WebMaster