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

2. 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

3. 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.

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

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

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

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

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

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

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

11. 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

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

13. 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

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