Question

1- Define and give examples of compensating wage differentials.

2- What is the impact of a minimum wage law on unskilled labor? Give examples

Answer 1

Answer 1

Compensating wage differential is the relation between wage rate and job risk or undesirable attrIbutes to a particular job. This is used for equilizing difference of wages.

It defines the amount of additional income which is required or must be offered to a worker to compensate for the given undesirable job or related jobs which the worker could perform. On the other hand workers with desirable job will accept lower wage, relative to other jobs. This is done to equilize the difference of wage and reduce the future risks.

For example, two job of same ability and skills requirement, one being a toilet cleaner which would require a higher wage to compensate for that undesirable job and unpleasent environment, than a job of a gardener.

Answer 2

Impact of minimum wage law on unskilled labor are as follows:-

a) Slows growth In the creation of low skilled jobs.

b) Discriminates against unskilled workers by keeping them from aquiring work experience and qualification.

c) Discourages further education among the poor by enticing people to enter the job market.

d) Small companies or firms cannot offer their valuable employees fair and attractive wages above unskilled workers paid artificially high minimum.

e) Removal of certain group of unskilled workers.

f) Encourages employers to replace unskilled workers with Computers.