Tuesday, April 21, 2009

Compensating Wage Differentials

In class yesterday, I briefly discussed compensating wage differentials (aka compensating differential or equalizing difference). A compensating wage differential is the extra compensation that must be offered to a worker in order for them to accept a risky, dangerous, or dirty job.

E.g., how much extra do you think needs to be offered to:

The answers are here, here, and here.

Overly interesting subjects to asses! After reading the article I put myself in each different situation, then asked myself what wage I would accept as compensation? Then realized in regards to the prostitution example, the statistics revealed as much as 46% wage increase. Yet that 46% is retained from small VMP (value of marginal product)because to put yourself in that situation your self-value is less. Basically, the demand theory suggested will not work because starting VMP level is low, and would need to sky rocket for extreme responses.
The Mexican prostitution article was very interesting and was an excellent example of compensating wage differentials in the real world. I found this study to be fascinating, and was amazed that this study was able to be conducted. I am still not sure how the researchers/economists were able to ensure that the prostitutes were telling the truth about their condom use and safe sex practices, but beyond that aspect of the study I am sure that this study still represents the average prostitute, and I think that the way in which Gertler proposes to minimize the transfer of HIV or other sexual transmitted diseases makes sense. Although this is good in theory I believe that if they government or any other group that would offer this compensation, would eventually fail. If they offered a certain level of compensation, then certain men would simply offer more money to pay for unprotected sex, and then the compensation for protected sex would become obsolete. Although this would make it less likely that the more poverty ridden areas, which would most likely have cheaper prostitutes which would be more willing to take the compensation do to the risk in poorer areas and also due to the fact that the men would not have any extra money to pay beyond the compensation for unprotected sex, which would eliminate the possibility for the spreading of the disease, in these areas.
I feel all jobs have compensating wage differentials. While one job might be risky to your personal health, another job might be embarrassing to your ego. When my Dad was a teenager, his first job was at jack in the box. One time the boss asked my Dad to be Jack, and in order to keep his job he performed this duty. Some kids were heckling him, and he told them he made $10 a hour. They stopped. While he did not actually make $10 a hour, he did secure his job in a tough market, so his job security was his compensating wage differential.
Post a Comment

Subscribe to Post Comments [Atom]

<< Home

This page is powered by Blogger. Isn't yours?

Subscribe to Posts [Atom]