The Compensation Wage Differentials

Updated on June 7, 2018

Labor Markets: High & Low Risk Jobs

The Wage Compensating Differentials
Compensation is a lot more than paid wages. It’s typically one of the biggest expenses companies make when hiring their employees. These expenses include; bonuses, stock options, merit rewards, base pay (hourly or salary wages), sales (commission), overtime and such benefits as (insurance, standard vacation, retirement) other cash and non-cash rewards. Compensation is defined as the total amounts of cash and non-cash payments made to workers in exchange for labor in the market. The theory of compensating wage differentials, originally conceived by Adam Smith suggests: Jobs with disagreeable characteristics; with all other things equal, more so command higher wages. Today, firms offer different working working conditions for their workers. While workers exhibit different preferences. Consider for example; that there are only two types of jobs in the labor market. Some are safe (less hazardous) and others are risky (more hazardous) jobs. Workers prefer different job characteristics. Those who are looking for a particular set of work environments, search the market for the firms providing such working conditions.

The theory of compensating wage differentials describes how these two sides “match and mate” in the labor market. Workers in a way that’s characteristic display different attitudes towards risks. The greater a worker’s dislike of risk (more hazardous) jobs; the greater the bribe he/she demands for switching from a safe (less hazardous) job to a more risky (hazardous) job, thus the greater the amount of money it would take to bribe he/she into accepting the risky (more hazardous) occupation. Much as workers decide on whether to accept job offers from risky (more hazardous) firms or more safe (less hazardous) firms; a firm must also decide on whether to provide a risky (more hazardous) or a safe (less hazardous) working condition for it’s workers. The choice depends on what is more profitable.

When the demand for workers in more risky working environments are small, there is a negative compensating wage differential for such workers in the labor market. In turn; firms might get away with paying a lower wage for their workers in more risky occupations. Some workers like the risk. In fact; we can expect workers (race car drives, explorers) to derive a certain level of utility from similar occupations. It means workers are also willing to pay for the right to work in risky working conditions. The market compensating wage differentials is negative when there’s very little demand for such workers in the labor market. Workers maximize utility by choosing a wage-to-risk combination which offers them the greatest amounts of utility.

The labor market binds workers-to-firms; those who dislike risk correspond more with firms that find it convenient to provide a safe working condition for their workers. While the same is true for workers who do not mind the risk as much to that of firms which find it challenging to complement safe working conditions. In short; as long as all persons in a population agree on whether a certain job characteristic is (good, bad) some jobs are associated with lower wages, whereas others are considered to compensate more higher rewards

Questions & Answers

    Comments

      0 of 8192 characters used
      Post Comment

      No comments yet.

      working

      This website uses cookies

      As a user in the EEA, your approval is needed on a few things. To provide a better website experience, owlcation.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

      For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://owlcation.com/privacy-policy#gdpr

      Show Details
      Necessary
      HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
      LoginThis is necessary to sign in to the HubPages Service.
      Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
      AkismetThis is used to detect comment spam. (Privacy Policy)
      HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
      HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
      Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
      CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
      Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
      Features
      Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
      Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
      Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
      Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
      Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
      VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
      PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
      Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
      MavenThis supports the Maven widget and search functionality. (Privacy Policy)
      Marketing
      Google AdSenseThis is an ad network. (Privacy Policy)
      Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
      Index ExchangeThis is an ad network. (Privacy Policy)
      SovrnThis is an ad network. (Privacy Policy)
      Facebook AdsThis is an ad network. (Privacy Policy)
      Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
      AppNexusThis is an ad network. (Privacy Policy)
      OpenxThis is an ad network. (Privacy Policy)
      Rubicon ProjectThis is an ad network. (Privacy Policy)
      TripleLiftThis is an ad network. (Privacy Policy)
      Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
      Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
      Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
      Statistics
      Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
      ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
      Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)