What Is Meant By A Compensating Wage Differential?

Wage differentials observed in the labor market are often compensating wage differentials. … 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.

What are the different types of wage differentials?

Wage differentials are also known as inter-industry, inter-firm, inter-area or geographical differentials.



Top 5 Causes of Wage Differentials – Explained!

  • Occupational Differences: …
  • Inter-firm Differentials: …
  • Regional Differences: …
  • Inter-Industry Differences: …
  • Personal Wage Differences:

What factors cause wage differentials?

The causes of wage differentials are as follows:

  • Nature of Employment. …
  • Profitability of Success. …
  • Training and Education. …
  • Security and Stability of Employment. …
  • Geographical Differences. …
  • Market Imperfection. …
  • Responsibility and Accountability of a Job. …
  • Strong and Organised Trade Union.

What are the factors affecting wage differential?

The nature and the extent of wage differentials are conditioned by a set of factors such as the conditions prevailing in the market, the extent of unionisation and the relative bargaining power of the employers and workers, the rate of growth in productivity, the extent of authoritarian regulations and the

When the labor market is in equilibrium?

The labor market is in equilibrium when supply equals demand; E* workers are employed at a wage of w*. In equilibrium, all persons who are looking for work at the going wage can find a job. The triangle P gives the producer surplus; the triangle Q gives the worker surplus.

Why is the wage distribution positively skewed?

The wage distribution is positively skewed (long right tail). A small percent of workers earn disproportionately large shares of the rewards for work. Most workers earn low wages. Large international differences in income distributions (see Table 8.1, p.

Do unions cause compensating differentials?

Whether unions actually compress wage differentials depends on the position of unionized workers in the pay distribution, the union wage premium attached to different types of worker, and the degree of centralization and coordination in collective bargaining.

Is the notion of compensating wage differentials invalid because?

Terms in this set (22) Is the notion of compensating wage differentials invalid because many of the lowest-paid people in society—for example, short-order cooks—also have relatively poor working conditions?

What is a hedonic wage?

A hedonic wage function reflect the relationship between wages and job characteristics. It matches workers with different risk preferences with firms that can provide jobs that match these different risk preferences.

Why are efficiency wages paid by employers?

Efficiency wages are above-market wages paid by employers in order to improve the productivity of their workforce; the optimal efficiency wage is determined by matching the marginal cost of increasing the wage to the marginal benefit to the employer of the improved productivity elicited by the wage increase.

Which of the following is a result of efficiency wages?

The increased labor productivity and/or decreased costs may pay for the higher wages. … Because workers are paid more than the equilibrium wage, there may be unemployment, as the above market wage rates attract more workers.

How do wages compensate for differences in job characteristics?

Other things equal, wage differences compensate workers for job attributes: The harder or less pleasant a job, the more a worker is compensated. Workers with more human capital are more productive and command higher wages than workers with less human capital.

What is reservation wage in economics?

Economics has an explanation for this: an increase in the “reservation wage.” The reservation wage is the lowest wage an unemployed person is willing to accept for a new job.

What is the 90 10 wage gap?

Specifically, this research focuses on the 90/10 income inequality ratio—the wage or salary income earned by individuals at the 90th percentile (those earning more than 90 percent of other workers) compared to the earnings of workers at the 10th percentile (those earning higher than the bottom 10 percent).

What can cause skewed distribution?

Skewed data often occur due to lower or upper bounds on the data. That is, data that have a lower bound are often skewed right while data that have an upper bound are often skewed left. Skewness can also result from start-up effects.

What makes a skewed distribution?

A distribution is skewed if one of its tails is longer than the other. The first distribution shown has a positive skew. This means that it has a long tail in the positive direction. The distribution below it has a negative skew since it has a long tail in the negative direction.

How do you find equilibrium real wage?

Answer: To find the equilibrium real wage and level of labor use the labor demand and labor supply equations. Thus, 200 – 4L = 4L or L = 25. To find W, substitute L = 25 into either the labor demand or labor supply equation: thus, W = 4(25) = 100.

What is an equilibrium wage?

The equilibrium market wage rate is at the intersection of the supply and demand for labour. Employees are hired up to the point where the extra cost of hiring an employee is equal to the extra sales revenue from selling their output.

How do you calculate wage rate?

In a perfectly competitive market, the wage rate is equal to the marginal revenue product of labor.

What are wage factors?

Wages: Factors That Affect Wage Levels and Wage Determination under Pure Competition. … Wages are the price that workers receive for their labor in the form of salaries, bonuses, royalties, commissions, and fringe benefits, such as paid vacations, health insurance, and pensions.

What four factors cause wage rates to differ give examples?

Why do wage rates differ? The rate of pay for a specific job, Determined by 4 factors: Human capital, working conditions, discrimination, and government actions.

What are the factors affecting wages and salary?

7 Factors to Consider for Determining Wage and Salary Structure…

  • (i) Labour Unions:
  • (ii) Personal perception of wage:
  • (iii) Cost of living:
  • (iv) Government legislation:
  • (v) Ability to pay:
  • (vi) Supply and demand:
  • (vii) Productivity:


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