Compensating Differentials:

Differences in wages that arises to offset non-monetary characteristics of different jobs

Accumulation of investments in people; The difference in wages may be considered a compensating differential for the cost of acquiring human capital

Firms (labor demanders):

Pay more for highly educated workers (whom have higher marginal products)

Workers (labor suppliers):

Bear cost of education because they expect a reward for doing so

Ability, Effort, Chance:

More natural ability and or hard work leads to higher earnings, Chance can influence wage

Signaling Theory of Education:

Schooling has no real productivity benefit, but workers signal their innate productivity to employers by their willingness to spend years at school

Benefits of Education:

Combination of productivity-enhancing of human capital and productivity-revealing effects of signaling

Superstar Phenomenon:

Superstars in the field have great public appeal and enormous incomes

Superstars Arising Characteristics:

Customers prefer the best producers, who can serve everyone efficiently at low cost

Monopsony (in a Labor Market):

Reduced job availability, Moves along labor supply curve, Reduces wage it pays, Increases profit

Reasons for Above-Equilibrium Wages:

Minimum-wage laws, Market power of labor unions, Theory of efficiency wages

Worker Association that bargains with employers over wages and working conditions

Collective refusal to work (protest)

Above-equilibrium wages paid by firms to increase worker productivity

Offering different opportunities to similar individuals who differ only by race, gender, etc.

Discrimination by Employers:

Competitive market economies- Natural antidote to employer discrimination (profit motive)

Discrimination by Customers and Governments:

Limits to the profit motive corrective abilities, Customer preferences (discriminatory), Government policies

Competitive Markets and Discrimination:

In competitive markets, profit-driven firms reduce discrimination, which persists only if customers or laws support it

Statistical Discrimination:

Arises because an irrelevant but observable personal characteristic is correlated with a relevant but unobservable attribute

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ECON EXAM 3 (C20)

Question	Answer
Compensating Differentials:	Differences in wages that arises to offset non-monetary characteristics of different jobs
Higher Supply of Labor for “Good” Jobs:	Lower equilibrium wage
Lower Supply of Labor for “Bad” Jobs:	Higher equilibrium wage
Human Capital:	Accumulation of investments in people; The difference in wages may be considered a compensating differential for the cost of acquiring human capital
Firms (labor demanders):	Pay more for highly educated workers (whom have higher marginal products)
Workers (labor suppliers):	Bear cost of education because they expect a reward for doing so
Ability, Effort, Chance:	More natural ability and or hard work leads to higher earnings, Chance can influence wage
Signaling Theory of Education:	Schooling has no real productivity benefit, but workers signal their innate productivity to employers by their willingness to spend years at school
Benefits of Education:	Combination of productivity-enhancing of human capital and productivity-revealing effects of signaling
Superstar Phenomenon:	Superstars in the field have great public appeal and enormous incomes
Superstars Arising Characteristics:	Customers prefer the best producers, who can serve everyone efficiently at low cost
Monopsony:	Market with only one buyer
Monopsony (in a Labor Market):	Reduced job availability, Moves along labor supply curve, Reduces wage it pays, Increases profit
Reasons for Above-Equilibrium Wages:	Minimum-wage laws, Market power of labor unions, Theory of efficiency wages
Effects of above-equilibrium wages:	Labor Surplus, Unemployment
Union:	Worker Association that bargains with employers over wages and working conditions
Strike:	Collective refusal to work (protest)
Efficiency Wages:	Above-equilibrium wages paid by firms to increase worker productivity
Discrimination:	Offering different opportunities to similar individuals who differ only by race, gender, etc.
Discrimination by Employers:	Competitive market economies- Natural antidote to employer discrimination (profit motive)
Discrimination by Customers and Governments:	Limits to the profit motive corrective abilities, Customer preferences (discriminatory), Government policies
Competitive Markets and Discrimination:	In competitive markets, profit-driven firms reduce discrimination, which persists only if customers or laws support it
Statistical Discrimination:	Arises because an irrelevant but observable personal characteristic is correlated with a relevant but unobservable attribute

Created by: IanMcCormick20

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