Which comparison 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 impatient.
C)Karl's wage is higher than Kay's because Karl's job may well cause long-term health problems and Kay's job will not impair her health.
D)Brenna's wage is higher than Bart's because Brenna is more productive.

Question

Quizplus · Accepted Answer

A compensating differential is a wage premium paid to compensate workers for undesirable aspects of a job, such as health risks or unpleasant working conditions. In this scenario, Karl's wage is higher because his job has a higher risk of causing long-term health problems, so he is being compensated for that risk. Kay's job, on the other hand, does not pose a risk to her health, so she does not receive a compensating differential. Choices A, B, and D all reflect differences in productivity or personal characteristics, not compensating differentials.

Which Comparison Best Illustrates a Compensating Differential