Chapter 19 - Chapter19 19 EARNINGSAND DISCRIMINATION...

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Earnings and Discrimination SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. A compensating differential is a difference in wages that arises to offset the nonmonetary  characteristics of different jobs.  Examples include coal miners who earn extra wages to  compensate them for dangerous working conditions, workers on the night shift who get paid more  than day-shift workers, and professors who are paid less than lawyers and doctors. More educated workers earn more than less educated workers because they are more  productive, so employers are willing to pay them more, and because more education may signal  greater ability. 2. It is hard to establish whether a group of workers are being discriminated against because there  are many reasons other than discrimination for wages to differ across workers, especially  differences in human capital and job characteristics. Profit-maximizing firms tend to eliminate discriminatory wage differentials because if some set of  workers were being discriminated against, it would be in the interest of profit-maximizing firms to  hire those workers with lower wages.  But that, in turn, would raise the wages of those workers  until the wages of all similar workers were equal. A discriminatory wage differential might persist if customers discriminated between people, as  may have been the case with old baseball cards, in which the prices of the baseballs cards  differed depending on the race of the player depicted on the card. Questions for Review 113 EARNINGS AND  DISCRIMINATION 19
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114   Chapter 19/Earnings and Discrimination 1. Coal miners get paid more than other workers with similar amounts of education because their  higher wage compensates them for the dirty and dangerous nature of coal mining, as well as their  long-term health problems.  As a result, they earn a sizable compensating differential. 2. Education is a type of capital because it represents an expenditure of resources at one point in  time to raise productivity in the future. 3. Education might raise a worker's wage without raising the worker's productivity if education  provides a signal that the worker has high ability. 4. The conditions that lead to economic superstars are:  (1) every customer wants to enjoy the good  supplied by the best producer; and (2) the good is produced with a technology that makes it  possible for the best producer to supply every customer at a low cost.  Because one dentist could 
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