Summary•While the discussion of Chapters 1 to 7 empha-sized that everyone in the “labour market” is paidthe same wage, wages clearly vary across individu-als. This chapter develops the tools to show whywages can be expected to differ across individu-als—even if everyone is equally productive—whenthe labour market comprises submarkets that areintegrated into a single, more broadly defined, butintegrated “labour market.”•Wages will be higher for some individuals in orderto compensate them for doing unpleasant jobs (orincurring additional costs of employment), whileothers will willingly accept lower pay for jobs withmore amenities.•The model of compensating wage differentials canbe applied to any job characteristic, but the mostcommon application is workplace safety.Firms canchoose their production technology to offer work-ers greater safety, or they can economize on safetyand offer the savings to workers in the form ofhigher wages. For any firm, there will generally be
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