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Unformatted text preview: Earnings and Discrimination 03/11/2007 16:08:00 Each worker is paid the value of his or her marginal contribution to the economys production of goods and services SOME DETERMINANTS OF EQUILIBRIUM WAGES Compensating differential: a difference in wages that arises to offset the non- monetary characteristics of different jobs. Fun, easy safe jobs pay less than hard, dull, dangerous jobs. Human capital: the accumulation of investments in people, such as education and on-the-job training Union: a worker association that bargains with employers over wages and working conditions Strike: the organized withdrawal of labor from a firm by a union Efficiency wages: above-equilibrium wages paid by firms to increase worker productivity COMPENSATING DIFFERENTIALS Fun, easy safe jobs pay less than hard, dull, dangerous jobs HUMAN CAPITAL Capital is the economies sock of equipment and structures, a factor of production that itself has been produced Human capital: the most important is education. Those with highers human capital earn more. In less developed countries, the difference in wages between the educated and uneducated is greatest because educated workers are scarce and demand is high. Firms pay more for educated workers because they have a higher marginal product The difference in wages may be considered a compensating differential for the cost of becoming educated CASE STUDY: THE INCREASING VALUE OF SKILLS The rich are getting rich and the poor are getting poorer The earnings gap has increased significantly in the past 20 years Hypothesis #1: international trade has altered the relative demand for skilled and unskilled labor. Because unskilled labor is plentiful and cheap in foreign counties, the US typically imports goods produced with unskilled labor and exports goods produced with skilled labor Hypothesis #2: changes in technology have altered the relative demand for skilled and unskilled labor. Skilled laborers are needed to operate the technology that does the work that unskilled laborer used to. Both hypotheses may be true ABILITY, EFFORT, AND CHANCE Higher levels of ability, effort, and chance affect wage Because the measurable variables including years of schooling, years of...
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This note was uploaded on 12/13/2007 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell University (Engineering School).
- Fall '06