Compensating Wage Differential  

The supply of labour depends on various factors such as:

  • Wages
  • Qualifications required
  • Non monetary benefits / costs

The compensating wage differential depends on how much income is necessary to compensate for unpleasant working environment.

For example, 2 jobs may have same skill requirement. But, one being a toilet cleaner may require a higher wage to attract enough people to supply their labour for that job compared with being a gardeners.

Compensating wage differentials may also be necessary for dangerous jobs.

 

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