Post on 19-Dec-2015
transcript
Chapter 8: Compensating Wage Differentials
Compensating Wage Differentials differences in pay designed to
compensate for differences in non-wage job characteristics
Compensating wage differentials
Compensating wage differentials
Compensating wage differentials
Conditions for the existence of compensating wage differentials
workers maximize utility, not income,
workers have perfect information, and
sufficient labor mobility exists.
Hedonic Pricing Model a commodity is sold that possesses a
bundle of characteristics that vary across the products that are offered for sale in the market.
only the price of the “bundle” of characteristics is observed, not the price of each individual characteristic.
in the labor market, jobs differ in terms of a variety of characteristics (including stress, educational requirements, risk of injury, etc).
Indifference curves
Indifference curves
Differences in risk aversion
Isoprofit curves
Isoprofit curves
Differences in the cost of reducing risk
Wage-offer curve
Wage-offer curve
Optimal matching
Optimal sorting
Optimal sorting
OSHA requirements
OSHA requirements
Arguments against OSHA If there is perfect information,
OSHA requirements: have no effect on the wellbeing of
workers who are already working in safe jobs, and
lower the utility received by workers who prefer high-risk/high-wage jobs.
Arguments for OSHA workers systematically
underestimate the risk they face, there are negative externalities
associated with worker injuries and deaths, and
worker compensation programs and health insurance plans encourage workers to accept too much risk.
OSHA - imperfect information
OSHA - imperfect information
OSHA - imperfect information
OSHA - imperfect information
OSHA and externalities family members and others suffer
negative externalities when a worker is killed or injured on a job.
workers do not take this negative externality into account.
too much risk is accepted.
Worker compensation the existence of worker
compensation programs and health insurance programs reduce the cost of an injury or occupational related illness to a worker, encouraging them to take on more risk.