A compensating wage differential is
A) an extra wage that compensates workers for undesirable working conditions.
B) an extra wage that is above the equilibrium wage.
C) an extra wage that will make all workers willing to accept undesirable working conditions.
D) an extra wage that implies firms are no longer maximizing profits.

Question

Quizplus · Accepted Answer

A compensating wage differential is an extra wage paid to compensate workers for accepting unwanted working conditions. It is higher than the equilibrium wage to persuade workers to take jobs that have unappealing aspects such as danger, dirtiness, or lengthy commutes. The compensating wage differential decreases employee demand and increases the supply of labor for those jobs, making it easier for firms to recruit employees in those circumstances without having to compromise their earnings.

A Compensating Wage Differential Is