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SummaryCh08 - S u m m ar y While the discussion of Chapters...

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Summary While the discussion of Chapters 1 to 7 empha- sized that everyone in the “labour market” is paid the same wage, wages clearly vary across individu- als. This chapter develops the tools to show why wages can be expected to differ across individu- als—even if everyone is equally productive—when the labour market comprises submarkets that are integrated into a single, more broadly defined, but integrated “labour market.” Wages will be higher for some individuals in order to compensate them for doing unpleasant jobs (or incurring additional costs of employment), while others will willingly accept lower pay for jobs with more amenities. The model of compensating wage differentials can be applied to any job characteristic, but the most common application is workplace safety.Firms can choose their production technology to offer work- ers greater safety, or they can economize on safety and offer the savings to workers in the form of higher wages. For any firm, there will generally be
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