Question 1

The statement that "coal miners are paid more than workers with similar levels of education" is likely to reflect the fact that

Accepted Answer

Coal mining is a potentially dangerous occupation, which may result in higher wages for miners than workers with similar levels of education in other industries.

Question 2

Which term do economists use to refer to a difference in wages that arises from nonmonetary characteristics of different jobs?

Accepted Answer

Compensating differentials refer to wage differences that arise to compensate workers for nonmonetary aspects of different jobs, such as risk, inconvenience, or undesirable conditions.

Question 3

Suppose that a company hires recent college graduates for two types of jobs, sales people and credit analysts. The hours worked and skill levels are the same for both positions. The sales people get to travel to several desirable locations, whereas the credit analysts do not leave the home office. When comparing the salaries of the two positions, it is likely that the company pays the

Accepted Answer

Sales people might be paid less as a compensating differential because the opportunity to travel to desirable locations can be seen as a form of non-monetary compensation that makes up for the lower salary.

Question 4

Sally and Harry both work at the local factory producing cars. Sally earns $22 per hour working the day shift, and Harry earns $25 per hour working the night shift. Sally and Harry do the same job, have the same experience, and have the same level of education. This means that the

Accepted Answer

The fact that Sally and Harry have the same job, experience, and level of education but receive different wages suggests that there is a compensating wage differential at play. This means that the higher-paying job (i.e. the night shift) compensates for the less-attractive working hours with a higher wage. The difference in pay between Sally and Harry represents this compensating wage differential of $3 per hour. There is no evidence to suggest that the factory is discriminating against Sally because of her gender.

Question 5

Nurses who work in hospitals often are required to work on weekends, whereas nurses who work in doctors' offices generally only work Monday through Friday. Hospital nurses who must work on weekends are usually paid more than nurses working in doctors' offices for the same work even if they have the same skills and education. This difference in pay is attributed to

Accepted Answer

The difference in pay is a compensating differential, which means that the higher pay compensates for the inconvenience of having to work on weekends. It is not an efficiency wage, which is a higher wage meant to increase worker productivity. Nor is it due to differences in marginal product of labor or differences in human capital.

Question 6

On average, truck drivers who drive on dangerous ice-covered roads earn more per mile driven than similarly skilled truck drivers who drive on normal roads. The difference in pay can be attributed to

Accepted Answer

The difference in pay between truck drivers who drive on dangerous ice-covered roads and those who drive on normal roads is due to a compensating differential. This is a difference in pay that compensates workers for the additional risk and discomfort associated with a particular job. In this case, driving on dangerous ice-covered roads is considered riskier and more uncomfortable, so truck drivers who do it are paid more to compensate for these factors. The other options (A, B, and C) are not relevant in this scenario.

Question 7

A company has two locations where it employs workers doing the same job and working the same hours. Other things the same most workers would prefer to live in location A, but location A has a higher cost of living than location B.

Accepted Answer

The answer of A company has two locations where it...

Question 8

Other things equal, a particular job will likely pay a higher wage if it involves

Accepted Answer

Jobs that involve danger to the worker typically pay higher wages to compensate for the risk involved.

Question 9

Construction work is much riskier than working as a server at a restaurant. As a result, we'd expect a difference in wages between the two jobs. The difference is known as

Accepted Answer

A compensating differential refers to the difference in wages that compensates for differences in working conditions or job characteristics, such as risk. In this scenario, the construction work carries more risk than working as a server, so we would expect construction workers to be paid more to compensate for the higher risk.

Question 10

The statement that "night shift workers make a higher wage than day shift workers" is likely to reflect the fact that

Accepted Answer

Night shift work is often less desirable due to its impact on social and family life, leading employers to offer higher wages to attract workers.

Question 11

Workers who work the night shift are often paid more than those who do identical work on the day shift. This is referred to as a

Accepted Answer

The term "compensating differential" refers to the compensation (higher pay) given to workers who work under less desirable conditions, such as working the night shift. This is not considered discriminatory wage practice as it is not based on any unjustified or prejudiced reasons, but rather on the difference in working conditions. It is also not necessarily a market inefficiency, as employers may offer higher pay for night shift workers to attract and retain employees who are willing to work those hours.

Question 12

On average, electricians who work on dangerous high-voltage power lines earn more per hour than similarly skilled electricians who don't work on dangerous high-voltage power lines. The difference in pay is attributed to

Accepted Answer

The difference in pay is attributed to a compensating differential. Electricians who work on dangerous high-voltage power lines face a greater risk of injury or death compared to electricians who don't work on such power lines. To compensate for the increased risk, electricians who work on dangerous high-voltage power lines are paid more per hour. This is an example of a compensating differential.

Question 13

Which of the following is not an example of a compensating differential?

Accepted Answer

Compensating differentials are wage differences that result from non-monetary factors such as job risk, job complexity, and job location. Option C, where Ben is paid higher due to his educational qualification, is not an example of a compensating differential. Instead, it is a wage premium for a human capital investment.

Question 14

Since people get sick at all hours of the day, some nurses who work in hospitals are required to work the night shift. In most cases, the nurses who work the night shift earn a higher hourly wage for the same work as the nurses who work the day shift. This difference in pay is referred to as a

Accepted Answer

The difference in pay between the nurses who work the night shift and the nurses who work the day shift is a compensating differential. This is because working the night shift may be less desirable to some individuals due to the disruption of their normal sleep schedule, so employers offer a higher wage to compensate for this inconvenience. It is not discriminatory wage practice or wage inequity because the difference in pay is based on a valid reason and applies to all employees who work the night shift, regardless of their personal characteristics. It is also not a market inefficiency, as the wage differential reflects the supply and demand for nurses who are willing to work during the night hours.

Question 15

Factory workers who work the day shift earn less per hour than similarly-skilled factory workers who work the night shift. The difference in pay is attributed to

Accepted Answer

The difference in pay between day shift and night shift workers is a compensating differential. This is because night shift work comes with additional costs and inconveniences, such as an increased risk of health problems and disruption to normal sleep patterns. The higher pay for night shift workers compensates them for these additional costs and inconveniences.

Question 16

Many kindergarten teachers have advanced education degrees, yet they have lower average earnings than other individuals with similar education levels. A potential explanation for the differences in earnings is that kindergarten teachers

Accepted Answer

Kindergarten teachers may accept lower salaries in exchange for more pleasant working conditions, such as a nurturing environment and the joy of working with young children.

Question 17

As a summer job, some teenagers choose to detassle corn, a job requiring long hours walking corn fields in the summer heat. Other teens take jobs working as lifeguards. Given that detassling corn is a more difficult job than working as a lifeguard, we would expect a difference in wages between the two jobs. This difference is known as

Accepted Answer

The difference in wages between detassling corn and working as a lifeguard is a compensating differential. This is because detassling corn is typically considered a more difficult and unpleasant job than lifeguarding, so employers offer higher wages to compensate workers for taking on the extra hardship.

Question 18

Suppose that a company hires recent college graduates for two types of jobs, sales people and credit analysts. The hours worked and skill levels are the same for both positions. The sales people must "cold call," which many people find to be unpleasant. When comparing the salaries of the two positions, it is likely that the company pays the

Accepted Answer

Sales people are likely paid more as a compensating differential because cold calling is considered an unpleasant task, and higher pay compensates for this undesirable aspect of the job.

Question 19

If a worker is indifferent between a job with a wage of $10 per hour and a job with a wage of $12 per hour, then the

Accepted Answer

The fact that the worker is indifferent between the two jobs means that they perceive the non-monetary factors (such as work environment, job security, etc.) to be worth $2 per hour. This is known as a compensating wage differential.

Question 20

Wages of doctors tend to be higher than wages of bankers. Which of the following is a compensating differential explaining the difference in wages?

Accepted Answer

All of the above are compensating differentials that can explain why doctors earn higher wages than bankers. Doctors have higher levels of stress and responsibility, are often required to work non-traditional hours, and must pay for malpractice insurance. These compensating differentials help to offset the costs and risks associated with being a doctor and thus contribute to higher wages in this profession.

Quiz 19: Earnings and Discrimination