Addison Wesley Longman, Inc. © 2000 Chapter 8 Compensating Wage Differentials and Labor Markets.

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Chapter 8 Compensating Wage Differentials and Labor Markets.
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Presentation transcript:

Addison Wesley Longman, Inc. © 2000 Chapter 8 Compensating Wage Differentials and Labor Markets

Addison Wesley Longman, Inc. © 2000 Compensating Wages A compensating wage is extra pay needed to compensate a person for undesirable working conditions –Social Value –Individual reward Placing a $ value on safety & other conditions Do unpleasant jobs all get higher wages? Ceteris Paribus

Addison Wesley Longman, Inc. © 2000 Examples Night shift earns 4% more or $1000/year more Employees in socially responsible occupations earn 30% less than those is occupations rated with average responsibility. Students who work in non- profit sector earn 43% less despite similar GPAs. Boys in 1850s Britain earned 17% more if worked in companies where corporal punishment was used.

Addison Wesley Longman, Inc. © 2000 A Family of Indifference Curves Between Wages and Risk of Injury Figure 8.1

Addison Wesley Longman, Inc. © 2000 Representative Indifference Curves for Two Workers Who Differ in Their Aversions to Risk of Injury Figure 8.2

Addison Wesley Longman, Inc. © 2000 A Family of Isoprofit Curves for an EmployerFigure 8.3

Addison Wesley Longman, Inc. © 2000 The Zero-Profit Curves of Two FirmsFigure 8.4

Addison Wesley Longman, Inc. © 2000 Matching Employers and EmployeesFigure 8.5

Addison Wesley Longman, Inc. © 2000 An Offer CurveFigure 8.6

Addison Wesley Longman, Inc. © 2000 The Effects of Government Regulation in a Perfectly Functioning Labor Market- OSHA Figure 8.7

Addison Wesley Longman, Inc. © 2000 Reasons to Regulate Workers uninformed Workers immobile External costs –health care, children Protect people from themselves & preferences may change with time –hard hats –seatbelt laws

Addison Wesley Longman, Inc. © 2000 An Indifference Curve Between Wages and Employee BenefitsFigure 8.9

Addison Wesley Longman, Inc. © 2000 An Isoprofit Curve Showing the Wage/Benefit Offers a Firm Might Be Willing to Make to Its Employees: A Unitary Trade -off Figure 8.10

Addison Wesley Longman, Inc. © 2000 Market Determination of the Mix of Wages and BenefitsFigure 8.12

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