Chapter 8 - Compensating wage differentials. In this chapter, students will be able to understand: Relative pay rates across jobs, different wages for identical skills, safety regulation, adequate compensation for unpleasant or risky jobs. | Chapter Eight Compensating Wage Differentials Created by: Erica Morrill, Fanshawe College © 2002 McGraw-Hill Ryerson Ltd. Chapter Focus Relative pay rates across jobs Different wages for identical skills Safety regulation Adequate compensation for unpleasant or risky jobs Chapter 8- © 2002 McGraw-Hill Ryerson Ltd. Theory of Compensating Wages Agreeableness/disagreeableness of job Ease/difficulty and expense of learning job Turnover in that position Degree of power and trust held Probability or improbability of success in job Chapter 8- © 2002 McGraw-Hill Ryerson Ltd. Isoprofit Schedule Combinations of wages and safety that the firm can provide and maintain the same level of profit Exhibits a diminishing marginal rate of transformation between wages and safety Lower curves imply higher levels of profits Chapter 8- © 2002 McGraw-Hill Ryerson Ltd. Figure a Isoproft Schedule A Firm is providing little safety and can provide additional safety in a relatively . | Chapter Eight Compensating Wage Differentials Created by: Erica Morrill, Fanshawe College © 2002 McGraw-Hill Ryerson Ltd. Chapter Focus Relative pay rates across jobs Different wages for identical skills Safety regulation Adequate compensation for unpleasant or risky jobs Chapter 8- © 2002 McGraw-Hill Ryerson Ltd. Theory of Compensating Wages Agreeableness/disagreeableness of job Ease/difficulty and expense of learning job Turnover in that position Degree of power and trust held Probability or improbability of success in job Chapter 8- © 2002 McGraw-Hill Ryerson Ltd. Isoprofit Schedule Combinations of wages and safety that the firm can provide and maintain the same level of profit Exhibits a diminishing marginal rate of transformation between wages and safety Lower curves imply higher levels of profits Chapter 8- © 2002 McGraw-Hill Ryerson Ltd. Figure a Isoproft Schedule A Firm is providing little safety and can provide additional safety in a relatively inexpensive manner B Firm is providing considerable safety and can provide additional safety only through the introduction of more sophisticated and costly procedures Wage Safety Ih Io Chapter 8- © 2002 McGraw-Hill Ryerson Ltd. Different Firms with Different Safety Technologies Different abilities to provide safety at a given cost Different shaped isoprofit schedules for the same level of profit Chapter 8- © 2002 McGraw-Hill Ryerson Ltd. Figure b Different Firms with Different Safety Technologies Wages Safety I1 Firm 1 I2 Firm 2 Outer edge = Employer’s offer or market envelope W1 S* W2 Chapter 8- © 2002 McGraw-Hill Ryerson Ltd. Employers’ Offer Curve Maximum wages that will be offered for various levels of safety Points within will not be offered because the other firm can offer a higher wage at the same level of safety Employees will move to the firm supplying the highest wage for each level of safety Chapter 8- © 2002 McGraw-Hill Ryerson Ltd. Individual’s Preferences .
