Lecture 28: Wage Differentials - III

Summary

In this lecture, the concept of compensating wage differentials is explored, particularly the possibility of risk jobs paying lower wages than safe jobs. Factors such as worker preferences, market forces, and subjective valuation of job characteristics influence these differentials. The lecture discusses how non-monetary aspects, individual perceptions of risk, and market conditions can lead to counterintuitive outcomes where risk jobs offer lower wages. Examples include hazardous jobs like logging and fishing, which may not offer higher wages as expected, and jobs in desirable locations that might pay less due to the location's appeal.

Takeaways

• 😀 Compensating wage differentials occur when workers are paid more for taking on riskier jobs.
• 😮 Sometimes, the market compensating wage differential can go in the opposite direction, where riskier jobs pay less than safer ones.
• 🤔 Workers who prefer risky jobs may have a negative reservation price, meaning they are willing to accept lower wages or even pay to work in such jobs.
• 📉 The supply and demand for risky jobs can influence whether compensating wage differentials are positive or negative.
• 👷 Limited demand for certain high-risk jobs, such as test pilots or astronauts, can result in negative wage differentials.
• 📊 The perception of risk varies among individuals, affecting the wages workers are willing to accept.
• 💼 Non-monetary factors like job satisfaction, location, and job security can influence wage differentials, sometimes leading to lower pay for risky jobs.
• 🌍 Market forces, such as labor supply and demand, play a significant role in determining wage differentials, which can go against conventional expectations.
• 🧠 Jobs requiring advanced education or special skills may offer lower wages, defying the assumption that such jobs should always pay more.
• 💡 Understanding compensating wage differentials is essential for designing policies that improve workers' welfare and address wage inequalities.

Q & A

What is the main topic of lecture number 28?

The main topic of lecture number 28 is the discussion of compensating wage differentials, particularly focusing on whether risk jobs might pay lower wages than safe jobs.

How do supply and demand for risk jobs determine market compensating wage differentials?

Supply and demand for risk jobs determine market compensating wage differentials by the intersection of the upward-sloping supply function and the downward-sloping demand function, which establishes the number of workers employed in risk environments and the compensating wage rate.

What is the significance of the compensating wage differential being positive?

A positive compensating wage differential signifies that workers in risk jobs are paid higher wages than those in safe jobs to compensate for the higher risk involved.

Why might some workers prefer risk jobs despite the higher probability of injury?

Some workers might prefer risk jobs because they derive utility from the risk, such as thrill-seekers who enjoy the adrenaline rush associated with high-risk activities.

What is the term used to describe workers who are willing to pay for the right to be employed in risk jobs?

Workers who are willing to pay for the right to be employed in risk jobs are said to have a 'negative reservation price' because they are willing to accept lower wages or even pay to work in such environments.

How can the compensating wage differential be negative?

The compensating wage differential can be negative when the supply of workers willing to work in risk jobs for less than safe jobs exceeds the demand for such workers, leading to a situation where risk jobs pay less than safe jobs.

What factors can lead to compensating wage differentials going in the 'wrong' direction?

Compensating wage differentials can go in the 'wrong' direction due to factors such as subjective valuation of risk, non-monetary job factors, market conditions, and individual preferences for job characteristics.

Why might some hazardous jobs not offer wages proportionally higher compared to less risky occupations?

Some hazardous jobs might not offer proportionally higher wages due to factors like an abundance of willing workers, lack of regulation, or because the demand for such workers is very small.

How do job amenities influence compensating wage differentials?

Job amenities, both positive and negative, influence compensating wage differentials by affecting workers' overall satisfaction and utility. Positive amenities might lead to lower wages if they are highly valued, while negative amenities might necessitate higher wages to attract workers.

What role do compensating wage differentials play in the labor market?

Compensating wage differentials play a crucial role in the labor market by reflecting the complex interplay between monetary compensation and non-monetary job attributes, influencing wage structures, and guiding workers' behavior in job selection.

Why is it important to understand compensating wage differentials in the context of labor market policies?

Understanding compensating wage differentials is important for designing labor market policies aimed at improving worker welfare, such as minimum wage laws and occupational health and safety regulations, as well as for understanding the implications of benefit mandates.

Outlines

00:00

🎓 Introduction to Compensating Wage Differentials

The lecture begins by revisiting the concept of compensating wage differentials, where wages differ based on the risks associated with a job. It discusses how supply and demand for risky jobs determine these differentials, exploring situations where risky jobs might pay less than safe jobs, even when the general expectation is that they should pay more. The lecturer also explains the factors influencing this reversal, such as workers' willingness to take risks or enjoy dangerous environments.

05:01

📉 Negative Compensating Wage Differentials

This section introduces the concept of negative compensating wage differentials, where workers may accept lower wages for riskier jobs. Using a graph to explain the interaction between supply and demand for risky jobs, the lecture demonstrates how the market might set lower wages for jobs that are inherently more dangerous. Factors like the small number of workers needed for specific risky jobs, such as astronauts or test pilots, are cited as reasons for the negative differential.

10:03

⚖️ Factors Affecting Wage Differentials

The lecture discusses how individual preferences and subjective valuations affect wage differentials. Workers may prioritize non-monetary benefits, such as job satisfaction or flexible hours, over higher wages. These preferences lead to a variety of outcomes in wage differentials, where lower-paying jobs can still attract workers due to desirable characteristics. The idea of trade-offs between different job attributes, such as high wages versus longer hours or stressful environments, is also explored.

15:04

🛠️ Subjective Risk and Market Forces

This section delves deeper into how workers perceive risk differently, and how this perception influences their wage expectations. Some workers are willing to accept lower pay for safer jobs, while others may demand higher wages for riskier ones. Market conditions, such as a surplus of willing workers, can also drive wages lower than expected. The lecture highlights the complexity of compensating wage differentials, which depend on various individual and market-driven factors.

20:04

🏙️ Compensating Differentials Defying Expectations

Examples of compensating wage differentials that defy conventional expectations are presented, such as lower wages for hazardous jobs or highly educated roles. Factors like a surplus of labor or the attractiveness of a job’s location may lead to lower pay in roles that would typically be expected to offer higher wages. This challenges the assumption that riskier or more demanding jobs always pay more, illustrating how market conditions can flip these expectations.

25:05

💼 Positive and Negative Job Attributes

The lecture discusses how both positive and negative job attributes affect compensating wage differentials. Positive attributes like job security, flexible work hours, and comprehensive benefits may lead to lower wages, while negative attributes, such as physical demands or high stress, often require higher wages to attract workers. The concept of job amenities, which includes non-wage factors like work environment and company culture, is key to understanding the dynamics of wage determination.

Keywords

💡Compensating Wage Differentials

Compensating wage differentials refer to the difference in wages between jobs with different levels of risk or undesirability. In the video, it is discussed that these differentials are meant to compensate workers for taking on jobs with higher risks or less desirable conditions. For instance, jobs with a higher probability of injury might offer higher wages to attract workers, as mentioned in the context of construction workers and miners.

💡Risk Jobs

Risk jobs are those that involve a higher probability of injury or danger. The video explains that these jobs often pay higher wages as part of compensating wage differentials to attract workers who are willing to accept the additional risk. An example given is that of test pilots and astronauts, where the demand for such risky jobs is very small, and workers might even be willing to pay to take on such roles.

💡Safe Jobs

Safe jobs are those that do not involve significant risk or danger. The video contrasts safe jobs with risk jobs, indicating that safe jobs might pay lower wages because they do not require the same level of compensation to attract workers. The concept is used to compare and contrast with risk jobs to illustrate how compensating wage differentials work.

💡Supply and Demand

Supply and demand forces are fundamental to determining market compensating wage differentials. The video explains that the supply function for risk jobs is upward sloping, while the demand function is downward sloping, indicating how the market equilibrium is reached. This concept is crucial for understanding how the labor market arrives at wage rates for different types of jobs.

💡Reservation Price

The reservation price is the minimum wage at which a worker is willing to accept a job with certain characteristics, such as risk. The video mentions that workers who like risk jobs might have a negative reservation price, meaning they are willing to pay to work in such jobs. This concept is used to explain why compensating wage differentials might sometimes be negative.

💡Market Equilibrium

Market equilibrium is the point at which the supply of labor and the demand for labor intersect, determining the wage rate and the number of workers employed in risk environments. The video uses the concept of market equilibrium to explain how the compensating wage differential is established, such as at the intersection of supply and demand curves.

💡Job Amenities

Job amenities refer to the non-monetary aspects of a job that can affect a worker's overall satisfaction and utility. The video discusses how job amenities, both positive and negative, can influence wage rates and labor market behavior. For example, a job with a positive amenity like flexible hours might pay less because the amenity itself is valued by workers.

💡Non-Monetary Job Attributes

Non-monetary job attributes include factors like job satisfaction, work environment, and flexibility, which can influence a worker's decision alongside wages. The video explains that these attributes are considered when workers evaluate job offers, and they can lead to a situation where a job with lower wages might still be attractive due to desirable non-monetary benefits.

💡Individual Preferences

Individual preferences play a role in how workers evaluate job characteristics and compensating wage differentials. The video suggests that different workers value job attributes differently, which can lead to variations in how compensating wage differentials manifest in the market. For example, some workers might prioritize job security over higher wages, even if it means working in a riskier environment.

💡Market Forces

Market forces, including demand and supply dynamics, can influence compensating wage differentials. The video discusses how market conditions can sometimes lead to compensating wage differentials going in unexpected directions, such as when there is a surplus of workers willing to accept jobs with undesirable characteristics, leading to lower wages than expected.

💡Labor Market Outcomes

Labor market outcomes refer to the results of the interaction between labor supply and labor demand, including wage rates and employment levels. The video concludes by emphasizing that understanding compensating wage differentials and job amenities is critical for analyzing labor market outcomes and designing policies aimed at improving worker welfare.

Highlights

Lecture explores the possibility of risk jobs paying lower wages than safe jobs.

Supply and demand for risk jobs determine market compensating wage differentials.

Risk jobs may pay less if fewer workers are willing to work in high-risk environments.

Market wage differentials can be negative if workers prefer risk jobs over safe jobs.

The compensating wage differential is the difference between the wage rate in risk and safe environments.

Workers who enjoy risk might have a negative reservation price for risk jobs.

Supply curve allows for workers with negative reservation prices to work in risk jobs for less pay.

Demand for risk job workers can be very small, leading to negative compensating wage differentials.

The risk valuation is subjective and varies among individuals.

Non-monetary factors like job satisfaction can influence compensating wage differentials.

Workers often trade off between different job characteristics, including wages and risk.

Market forces, including demand and supply dynamics, can affect compensating wage differentials.

Compensating wage differentials can be negative due to individual preferences and market conditions.

Examples given include logging and fishing jobs that may not offer proportionally higher wages for risk.

Jobs requiring higher education sometimes offer lower wages than expected.

Desirable locations can lead to lower wages as the location itself serves as a non-monetary benefit.

Certain jobs with undesirable tasks might offer lower wages than expected.

Compensating wage differentials and job amenities are critical concepts in labor economics.

Understanding compensating differentials helps in designing policies aimed at improving worker welfare.

The labor market allocation is not random but a matchmaking process between workers and farms.

Transcripts

[Music]

[Music]

hi everyone welcome to lecture number 28

the third lecture on compensating WS

differentials in our last lecture we

discussed about the supply to the risk

jobs and the demand for the risk jobs

and both these supply and demand for

risk jobs how they determine the market

compensating WIS

differentials in this lecture we'll

discuss about that can this compensating

W differential going in the wrong way

which means will it be possible that the

risk jobs pay lower wages than the safe

jobs so sometimes it may happen that if

a fewer workers they enjoying and

working in

a job

environment that have high probability

of injury and if this type of jobs uh

demand relatively fewer

workers then this Market waste

differential will go in the wrong

way if you

remember we discussed this uh demand and

Supply forces how they decides that the

market compensating waste differential

is positive so if you remember on this

x-axis we have taken this uh number of

workers in the risk jobs and the Y AIS

we have taken the Ws differentials

between this risk job

and the safe job and we have seen that

uh the supply function is upward sloping

and the demand function is downward

sloping at a certain level of high level

of wte differential the demand for the

risk jobs may be zero we have seen that

at a certain minimum level of waste

differential the supply of workers to

this risk jobs may be zero and this

intersection of this uh supply and

demand cars they decides that how much

of workers will be employed in a risk

environment at what compensating wage

rate and this compensating wage rate

which is W1 minus w0 W1 is the wage rate

in the risk environment w0 is the wage

rate in the safe environment this

differential here is positive so up to

this point we have assumed

that all workers they dislike

risk but it may be that some workers

they prefer to work in Risk jobs where

they face that high probability of

injury let's say some persons just like

motorcyclist who fly down the highway at

100 m hour without

helmet actually get utility from working

in the jobs where they can test their

courage so the reservation price for the

workers who like Risk is negative

because they're willing to pay for the

right to be employed in Risk

jobs so in that

case the compensating

ways may be negative and sometimes it

may uh be lower than uh the

safe wage rate from the safe

jobs so in this case the supply curve

allows the possibility that some workers

have negative reservation

price and therefore they're willing to

work in Risk jobs even though risk jobs

pays them less than the safe

job let's say the demand for workers in

the the risk job are very

small there are many examples let's take

one example

that an extremely uh limited number of

job openings uh for test pilots and

astronauts sometimes we have seen that

uh those who uh do these

STS motorcycle

STS so if some workers like to work in

the risk jobs they're willing to pay for

the right to be injured and the demand

for such workers is

small then in that case this

compensating wage differential is

negative let me explain uh it through

the help of this

graph

now in this graph on the x-axis we have

taken the number of workers in the risk

job after certain number this number

becomes

perfectly

inelastic

so this is the supply

function we are seeing that the supply

function starts from the minimum point

where we are saying we are finding that

this W differential between this risk

job and the safe job is

negative which means the risk job W from

the risk job is less than the wage rate

from the safe

job and there are few were workers and

there are few demands for this type of

workers in the

market so the demand function is

downward sloping and the interaction

between this demand and Supply happens

at Point P by deciding that Easter

amount of workers are employed at the

wage rate W1 minus w0 star this is the

compensating wage differential and this

compensating wage differential is

negative which means the wage rate in

the risk jobs are less than the wage

rate in the safe

jobs so the market demand

curve in this case would be then

intersect uh the market supply curve at

a point which is below that uh point

where if you look at the figure it is

p which implies that there is a negative

compensation and the way compensating

ways differential for Easter amount of

workers in the risk job is

negative now even though almost everyone

in the population they dislike risk the

demand for labor in the risk job also

very small and the Farms they are

offering risky work environment need

only hire those workers who are willing

to pay to be in those jobs

so the equilibrium explained in the

figure it reinforces our understanding

of exactly what compensating W

differential

measures now even though most of us

would think that it's sensible that the

theory should predict that workers

employ in the risk job should earn more

than the workers those who are employed

in the safe

job it takes two to

tango now if some workers are willing to

pay for the right to be exposed to the

high probability of

injury and if the demand for these type

of workers is sufficiently

small then the market differential will

go in the opposite

direction

now the question is that why do this

compensating way

differential often go in the wrong way

what could be the Poss I reason

theoretically we have seen that yes if

it happens in this way then this is

going to be uh the

negative the compensating W differential

is going to be negative but why it is

going to be

negative our theoretical

discussion suggest that why many

empirical

tests of this theory of compensating W

differential will inevitably contradict

our

expectations simply put the correct

direction of the W differential

typically reflects our own preference

and

biases obviously we are all reasonable

people so jobs we find disagreeable

should we pay

more however the theory indicates that

the market compensating W differential

measures what it took to get the

marginal worker to accept the particular

job now if the marginal worker happens

to like being employed in the risk jobs

or being told what to do on the job then

the market wage differential will be in

what seems to be in the wrong

direction and this compensating ways

differential can sometimes seems to be

going the wrong way because they do not

always align with our cutive

expectations let me discuss

few reasons why it might happen in that

way the risk is very uh subjective

valuation now different individuals may

value job characteristics

differently what one person finds

undesirable another might not mind that

much so for example some workers might

prefer the flexibility of irregular

hours even if it means a low pay while

Others May prioritize and stabilize the

higher

wages further there are so many

non-monetary factors which influence

this compensating W

differential while taking into

consideration the risk jobs the save

jobs compensating wage differential

consider both monetary and non-monetary

aspects of a

job non-monetary aspects like job

satisfaction

fulfillment or a pleasant work

environment that can influence the

workers's decision alongside the

wages sometimes workers give more

importance to these characteristics than

wages so in that case job with lower

wages might still attract

workers if it offer a desirable

non-monetary

benefits the workers often do the

trade-offs tradeoff between different

job

characteristics so a job with higher

wages but longer hours or greater

stress might still be appealing to some

individuals if they value the higher

income enough to compensate for this

negative

attributes

so while going with this compensating

wages the workers they do this kind of

trade

UPS

further while going with this

compensating W differential the

individuals they perceive the

risk so the perception of risk can vary

among the

individuals some workers May willing to

accept higher risk in exchange of higher

pay While others they prioritize the

safety this may go for lower

wages and with prior

safety so therefore this compensating

wage differential for the risk jobs

might not always result a significantly

High wages if the worker perceives the

risks

differently

further different Market

forces May compel that this compensating

W differential to go in wrong

direction like market conditions when we

talk about market conditions it includes

the demand and Supply

Dynamics so this demand and Supply

Dynamics can influence the compensating

W

differentials in some cases despite

undesirable job characteristics there

might be surplus of workers those who

are willing to accept the job so in that

case the w are going to be lower than

expected so these are the factors which

may lead

to this compensating ways differential

to go in a wrong

direction so in a sense compensating

ways differentials reflect the complex

interplay of individual preferences

Market forces and subjective valuation

of the job characteristics which can

sometimes leads to the outcomes that

seems to be

counterintuitive which means the

compensating waste differential can be

negative let me give you some examples

of compensating wage differential where

we can see that it can go against this

conventional

expectations like lower wages for

hazardous

jobs while one might expect jobs with

the high level of risk to offer

significantly higher

wages as

compensation this is not always the case

let's say for example Studies have shown

that some hazardous jobs such as logging

fishing may offer wages that are not

proportionally higher compared to the

less risk

occupations so this could be due to the

factors such as the availability of

workers willing to accept the jobs lack

of immunization inadequate regulatory

so these are the things which in those

cases we can find that uh this

compensating ways is going against this

conventional

expectations

further in the cases like lower wages

for the job requiring higher

education in those cases this W

compensating W differential may go in a

wrong direction like occupations

requiring Advanced education or special

skills often come with higher

compensating waste differential because

the individuals they have already done a

huge amount of investment of time and

money to get those

skills

but in certain case Fields like Academia

or certain Public Service roles wages

may not reflect the level of Education

or expertise

required like University professors or

less than the professionals with the

similar educational background in other

Industries so in those cases we can say

that the amount of time and money

invested to acquire those skills the

compensating ways for

those should be higher

but we have seen that sometimes it may

go in a wrong direction they are less

paid forther lower wages in desirable

locations it may happen that sometimes

people prefer to stay in their desirable

Lo location with a lower wage rate they

don't want to move from their places so

it's common to assume that jobs in

desable locations with high living costs

would offer higher wages to compensate

these

expenses however in some cases the

attractiveness of the location itself

can be a compensating

Factor so for instance jobs in the

cities with high cultural amenities

vibrant social SC

or desirable climates might offer the

lower wages compared to similar

positions in less attractive areas

because the location itself serves a

non-monetary

benefit

further higher wages for undesirable

tasks certain jobs they require

unpleasant task such as sanitation works

or cleaning hazardous

materials might offer lower wages than

expected compensating

differentials like in those cases

factors such as availability of Labor

working to perform those task low

unionization rates or lack of public

awareness about the risk involved the

kind of work they are doing or the some

kind of discrepancies are there so these

kind of situations may lead to a

compensating wayte differential in a

wrong

direction so these examples which we

discussed how compensating waste

differential can can sometimes defy the

conventional expectations due to variety

of factors such as market conditions

social norms individual preferences so

these are the factors these are

non-monetary factors play a significant

role to go compensating way differential

in a wrong direction while talking about

this compensating wayte differential and

the job

amenities compensating wayte

differential refers to the additional

amount of income that workers require to

accept undesirable job characteristics

or to forgo desirable job

amenities these two things they are

having a

tradeoff so job amenities can

include factors such as work environment

job security flexibility and the

benefits they're going to get from the

job now while understanding the

compensating wage differential and job

amenities it's crucial to analyze how

different job characteristics influence

the wage rates and labor market

Behavior if you remember by

definition of this compensating W

differential this compensating wage

differentials are the wage

differences that arises to compensate

workers for non-monetary aspects of

different

jobs now these aspects can include both

positive and negative job

attributes well there are some negative

job attributes like Risk and hazard

jobs involved with higher level of risk

or danger typically offers higher wages

to attract workers willing to accept

these risk jobs like construction

workers

miners unpleasant condition jobs with

unpleasant working condition such as

extreme temperature noise physical

discomfort may also pay higher

wages like Waste Management

workers irregular hours of work work

jobs requiring night shifts weekends or

irregular hours often come with a way

premium emergency

room nurses or security

guards so these are the negative job

attributes which leads to a compensating

wage differential to be

positive they should be PID at higher

wages there are also some job attributes

which are

positive like job security

jobs with high job security might pay

less because the workers value the

stability like government

jobs further the positive job attributes

like work life balance health and

retirement

benefits so jobs offering flexible hours

remote work options and the generous Le

policies might pay less these amenities

are highly valued like in Tech

Industries

they can work from

home flexible

workour further jobs with Comprehensive

benefit packages retirement benefits

health benefits they offer lower

salaries because this benefits

contribute significantly to the overall

compensation so the jobs are attributed

with some positive attributes and some

negative

attributes while talking about this job

amenities

job amenities are the non-wage

characteristics of a job that affects

the workers overall satisfaction and

utility this can also include a variety

of

factors like there are certain positive

amenities there are certain negative

amenities positive amenities like work

environment company culture professional

development when we talk about work

environment clean safe and aesthetic

pleasing workplace can attract workers

even if they are paid

less supportive and inclusive company

culture can increase the job

satisfaction and reduce the

turnover further this opportunities of

training carer advancement skill

development can attract the workers

despite they are getting initial low

wages so these are some positive

amenities of

job some negative amenities of theob job

are there like stress level physical

demand geographical

location high stress jobs might need to

offer higher wages attract to retain the

workers air traffic controller stock

Trader physically demanding jobs like

require higher compensation to attract

workers like manual workers warehouse

jobs jobs in less desirable locations

might need to offer higher wages to

attract workers like remote or economic

Ally depressed areas remote Village

areas so job amenities are both positive

and negative attributes are also there

in job

amenities now the role of compensating

wage differential in the labor market

can be studied from both labor supply

and

demand what we have seen is that workers

make decision based on the total

compensation package which includes W

and and job

amenities on the other side the

employers adjust wages to balance the

supply and demand for labor considering

the desirability of job

attributes so both the workers and the

employers they take into consideration

the job amenities and

the job

characteristics now workers

preference individuals preferences for

certain job amenities it may vary some

workers might prefer higher wages

despite of poor working condition while

other might prioritize this job security

or work life balance to with a low wage

rate so the market equilibrium

happens with this demand and supply and

decides the wage rate in any job it

reflects the compensating differential

required to attract and Rain workers

given the job specific

characteristics so high risk or on

legent jobs need to offer higher wages

while jobs with a positive amenities can

offer lower

wages

so understanding this compensating

differential helps in designing policies

aimed at improving the workers welfare

like minimum wage LW occupational

health and safety

regulations further it helps to

understand the benefit mandates

so it is required to understand the

policy

implications one has to understand why

their compensating W differential is

there and how much it is there in order

to draw certain

policies so policies that improve job

amenities can reduce the need for high

compensating wage differential leading

to more balanc and Equitable labor

markets so in summary we can say that

this compensating differential and job

amenities are critical concepts of labor

economics they explain how various job

characteristics influence the W

structure and workers

Behavior they also highlight the complex

interplay between monetary compensation

as well as non-monetary job

attributes so these monetary

compensation and non-monetary job

attributes together save the labor

market outcomes

so while concluding this lecture on this

uh compensating wte differential we can

summarize

that the workers reservation price it

gives the wage increase that will

persuade the worker to accept a job with

an unpleasant characteristics such as

risk of injury every worker they have

their reservation price to get into a

risk job

so the workers will switch over from a

safe job to risk job if the market

compensating wage differential exceeds

the workers reservation

price this is from the worker side the

supply side further in the other side

the farm the farm choose whether to

offer a risk environment or to offer a

safe environment to their

workers so Farms that offer a risk

environment must pay higher wages and

the Farms that offer a safe environment

must invest in safety and they will pay

lower wages to the workers so the farm

offer switch over environment is more

profitable so ultimately the Farm's

objective is to maximize profit whether

to go with a risk environment or to go

with a safe environment the farm has to

calculate that which environment is

going to be more profitable for

him so the market compensating way

differential

is the

dollar the amount which is required to

convince the marginal worker the last

worker to hire to move to the risk job

so if a few workers are enjoying they

enjoy working in the jobs that have high

probability of

injury and if this type of job demands

relatively few

workers then the market waste

differential will go in a wrong

direction so the risk jobs will pay

lower wages than the safe job we have

seen that the by convention the risk job

should pay more wages to the as compared

to the safe jobs but in certain cases

where the demand and Supply is very less

this may go in a wrong direction and the

risk jobs will may get low

wages so there is a marage of workers

and the farms in the market it's a

matchmate the workers who dislike

particular job characteristics like risk

of injury match with the farm that do

not offer those

characteristics workers who like

characteristics match with the Farms

that provide them the allocation of uh

labor in the labor market is not just a

kind of random allocation it's a

matchmate

so in our next lecture we'll discuss

about the W structure and the W

distribution in the

economy we'll discuss about how the

wages are

dispersed and they're

skewed and we can measure the inequality

that occurs because of this earnings and

why did this wage inequality happens in

the

economy thank you

[Music]