chapter 19 v2

Compensating Differentials

Wage differences due to job characteristics such as safety, difficulty, or fun.

Nonmonetary Characteristics

features that don’t involve pay but still affect how people feel about their work

What factors contribute to equilibrium wages in a job market?

Job differences, compensating differentials, human capital, and various personal attributes.

Human Capital

The accumulation of investments in people, including education and on-the-job training.

Signaling in Education

The idea that educational qualifications serve as a signal of a worker's ability, rather than solely increasing productivity.

Effort and Chance

Factors influencing wages, where effort results in higher earnings and chance can affect job opportunities.

The Superstar Phenomenon

The observation that top performers in certain fields earn disproportionately higher wages compared to average performers.

Minimum Wage

A legally mandated lowest wage that can be paid to workers, which can lead to wages above equilibrium.

Labor Market Discrimination

The practice of offering different opportunities or wages to similar individuals based on personal characteristics like race or gender.

Statistical Discrimination

Discrimination arising from using irrelevant personal attributes to make assumptions about relevant characteristics.

What role does education play in wage determination?

Education can enhance productivity and serve as a signaling tool for potential employers.

What happens to labor demand when wages are above equilibrium?

Labor demand typically decreases, leading to a surplus of labor or unemployment.

EX: night shift vs. day shift

Night shifts tend to pay more due to less desirability compared to day shifts.

What effect does technology have on the labor market?

Technology tends to displace unskilled labor while increasing the demand for skilled labor.

Compensating Differentials for Education

The wage difference between educated and uneducated workers as compensation for the cost of schooling.

Examples of Wages Above Equilibrium

Minimum wages, union bargaining, and efficiency wages that incentivize productivity.

What is the implication of labor supply exceeding demand?

It leads to a surplus of labor, resulting in unemployment.

Discrimination from Employers

Employers may face pressure to hire the best candidates regardless of personal biases.

Customer and Government Discrimination

When discrimination aligns with customer preferences or is supported by government policies, wage disparities can continue unchallenged.