Chapter 8 and 10 Outline

Chapter 8 and 10 Outline - CHAPTER 8 COMPENSATING WAGE...

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CHAPTER 8: COMPENSATING WAGE DIFFERENTIALS AND LABOR MARKETS one of the major functions of the labor market is to provide the signals and the mechanisms by which workers seeking to maximize their utility can be matched to employers trying to maximize profits individual choice and its outcomes o compensating wage differential —wage paid in order to attract workers e.g. company X pays $8 with clean environment and company Y pays $9 with dirty conditions o an equilibrium differential —when two competitive companies are fighting for workers and competing with wage changes if both obtain the quantity and quality of workers they wanted and there are no forces causing the differential to change e.g. company X pays $8 and company Y pays $8.50 serves two social desirable ends serves a social need by giving people an incentive to voluntarily do dirty, dangerous work individual level it serves as a reward to workers who accept unpleasant jobs by paying them more than comparable worker in more pleasant jobs o the allocation of labor two ways to recruit labor for undesirable, risky, dangerous jobs compel people to do these jobs o i.e. military draft induce people to do them voluntarily o wage differentials o incentives o compensation for workers compensating wage differentials also serve as individual rewards by paying those who accept bad or arduous working conditions more than they would otherwise receive compensating wage differentials become the prices at which good working conditions can be purchased by, or bad ones accepted by, workers o assumptions and predictions positive differentials (higher wages) will accompany “bad” characteristics while negative
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Chapter 8 and 10 Outline - CHAPTER 8 COMPENSATING WAGE...

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