Which of the following comparisons best illustrates a compensating differential?
A) John's wage is higher than Jane's because the value of John's marginal product is higher than Jane's.
B) Beth's wage is higher than Bill's because Beth is very personable, and Bill is very gruff.
C) Karl's wage is higher than Kay's because Karl's job may cause long-term health problems, and Kay's job will not impair her health.
D) All of the above are good illustrations of compensating differentials.

Question

Quizplus · Accepted Answer

Compensating differentials occur when workers are willing to accept a lower wage in exchange for a better working condition or additional benefits. In this case, Karl's higher wage compensates him for the potential health risks associated with his job. The other options do not illustrate compensating differentials - A represents wage differences due to differences in productivity, and B represents wage differences due to differences in personality traits.

Which of the Following Comparisons Best Illustrates a Compensating Differential