Practice question · Sort into groups
Sort these into reasons for wage differentials.
Groups: Human capital · Compensating differential
- Night-shift workers earn a premium
- Oil-rig worker earns above average (dangerous)
- PhD holder earns more than bachelor holder
- Surgeon earns more than nurse (years of training)
Hints
- One reason is investment in the worker; the other is the job's nature.
- Unpleasant conditions must be paid for.
Show the answer
Human capital: Surgeon earns more than nurse (years of training), PhD holder earns more than bachelor holder
Compensating differential: Night-shift workers earn a premium, Oil-rig worker earns above average (dangerous)
Why
Human capital: wages reward investment in skills. Compensating differential: wages compensate for undesirable job attributes.
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