Compensating Wage Differential Flashcards
1
Q
What are the two parts of the job
A
- the worker’s value of marginal product - how much the worker is producing
- the price paid for attributes of the job - compensating wage differential
2
Q
What is the compensating wage differential?
A
The price paid for attributes of the job
3
Q
What do workers want?
A
High wage and low danger
4
Q
When will workers except a riskier job?
A
If they are paid more
5
Q
What does U(w,0) > U(w,1) mean?
A
workers prefer safer jobs
6
Q
What are we assuming?
A
- Competitive labour market
- jobs differ in their level of safety (D=0 - safe job) (D = 1 - dangerous job)
- workers maximise utility
- all workers are equally productive - constant marginal product.
- workers know which jobs are safe/risky in advance
7
Q
What is w*?
A
The wage where U(w0,0) = U(w*,1)
8
Q
What is Z?
A
Z = w* - w0, Z is the compensating differential for the worker.
- Z is the increase that is necessary for a worker to accept a risky job over a safe job
9
Q
The worker excepts the job where D=1 if W is greater than/less than Z?
A
W>Z
10
Q
The worker accepts the job where D=0 when W is greater than/less than Z?
A
W<Z
11
Q
Given concerns about ability and selection bias, how can we estimate returns of schooling?
A
