Contemporary Labor Economics 11th

Edition McConnell Solutions Manual

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 CHAPTER 8
The Wage Structure
I. PERFECT COMPETITION: HOMOGENEOUS WORKERS AND JOBS

II. THE WAGE STRUCTURE: OBSERVED DIFFERENTIAL

III. WAGE DIFFERENTIALS: HETEROGENEOUS JOBS

A. Compensating Differentials
1. Risk of Job Injury or Death
2. Fringe Benefits
3. Job Status
4. Job Location
5. Job Security: Regularity of Earnings
6. Prospect of Wage Advancement
B. Differing Skill Requirements
C. Differences Based on Efficiency Wage Payments
1. Shirking Model and Wage Differentials
2. Turnover Model and Wage Differentials
D. Other Job or Employer Heterogeneties
1. Union Status
2. Tendency to Discriminate
3. Absolute and Relative Firm Size

IV. WAGE DIFFERENTIALS: HETEROGENEOUS WORKERS

A. Differing Human Capital: Noncompeting Groups
B. Differing Individual Preferences
1. Differences in Time Preferences
2. Tastes for Nonwage Aspects of Jobs

V. THE HEDONIC THEORY OF WAGES

A. The Worker’s Indifference Map
B. The Employer’s Normal-Profit Isoprofit Curve
C. Matching Workers with Jobs
D. Labor Market Implications

VI. WAGE DIFFERENTIALS: LABOR MARKET IMPERFECTIONS

A. Imperfect Labor Market Information
1. Wage Rate Distributions
2. Lengthy Adjustment Periods
B. Immobilities
1. Geographic Immobilities
2. Institutional Immobilities
3. Sociological Immobilities

WORLD OF WORK
1. Who Cares and Does it Matter?
2. Is Bigger Still Better?

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 3. Is Exercise Good for Your Heart As Well as Your Wallet?
4. Compensating Pay for Shift Work
5. Placing a Value on Human Life

GLOBAL PERSPECTIVE
1. Hourly Pay around the World

LEARNING OBJECTIVES

After learning the material in Chapter 8 of Contemporary Labor Economics, the student should be able to:
1. identify sources of wage differentials arising from differences in job or employer characteristics
and distinguish them from those that arise from worker differences
2. distinguish between “equilibrium” wage differentials and “transitional” wage differentials
3. describe how wage differentials may arise based on efficiency wage payments
4. use indifference curves to show a worker’s preferences for wages and job safety; explain the
shape of these indifference curves
5. use isoprofit curves to show a firm’s ability to trade off job safety and wages to maintain a level
of profitability; explain the shape of isoprofit curves
6. explain the roles of individual preferences and firm technology in establishing equilibrium wage
differentials
7. show graphically the optimal wage rate-job safety combination, and explain its significance in the
matching of workers to jobs
8. using the hedonic theory of wages, derive the expected observed relationship between wages and
nonwage job attributes
9. describe the role of labor immobilities and costly or imperfect information in observed wage
differentials.

ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS

3. The theory is not disproved. The differential for skill often swamps the differential for other
nonwage amenities.

4. The increased status may provide additional utility, but will attract more labor to the affected
occupation and reduce wage rates.

6. In the case of efficiency wages, employers push the wage rate above that which would clear the
labor market. They do this, for example, to create an incentive for workers not to shirk. Both the
cost to the firm of shirking behavior and the cost of monitoring workers vary across industries
and occupations, so efficiency wages can result in persistent wage differentials across those
industries and occupations.

10. This would be the case if nonwage amenities—job security, for example—in government jobs
were more highly valued than their private sector counterparts.

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© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.