Estimates of the compensating wage differentials associated with particular job characteristics are valid only if
A)all other factors that influence worker's wages are held constant.
B)non-wage characteristics of the job are allowed to vary by sector.
C)firms are willing to pay higher wages to more skilled workers.
D)the compensation wage equals the worker's marginal cost.
E)the firm provides non-pecuniary compensation for risks that workers encounter on the job.

Question

Quizplus · Accepted Answer

Compensating wage differentials are based on the idea that workers will require higher wages to compensate for undesirable job characteristics, such as risk or unpleasant working conditions. However, the estimates of the compensating wage differentials assume that all other factors that influence worker's wages are held constant. This means that workers with the same skills and experience should receive similar wages regardless of the job characteristics they face. Therefore, to obtain valid estimates of compensating wage differentials, we must control for other factors that could affect wages, such as education, experience, and location.

Estimates of the Compensating Wage Differentials Associated with Particular Job