How can compensating differentials explain differences in wages across jobs in different industries?
What will be an ideal response?
A compensating differential is the difference in wage that a worker will accept as compensation for a job with additional amenities, such as a better office. Other factors being the same, some workers may be willing to accept a lower wage in return for certain job attributes like an air-conditioned office or a great view. Becausejobs in different industries have different attributes, compensating differentials could explain why wages also differ across industries.
A-head: ECONOMIC TOOLS TO VALUE HUMAN LIFE
Concept: Compensating differentials
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Consumers in a country buy only two goods, sneakers and manicures. The prices and quantities purchased by urban households are in the table above. The reference base year is 2011. For these data, the CPI for 2011 is
A) 110. B) 3. C) 145. D) 160. E) 100.
The demand for labor reflects the point that the
A) lower the real wage rate, the greater the quantity of labor demanded. B) higher the real wage rate, the greater the quantity of labor demanded. C) nominal wage rate and not the real wage rate determines the quantity of labor demanded. D) real wage rate does not affect the quantity demanded of labor. E) demand for labor depends on the supply of labor.