. Computer programmers work under much more pleasant conditions than garbage collectors. Yet, according to the...

. Computer programmers work under much more pleasant conditions than garbage collectors. Yet, according to the Bureau of Labor Statistics, the median salary of a sanitation worker is about $35,270 and the median salary of a computer programmer is about $79,840. True or false: This shows that the theory of compensating wage differentials is wrong. Explain.

Expert Solution

FALSE

The predicted outcome of the compensating wage differential theory of job choice is not that employees working under “bad” conditions receive more than those working in “good” conditions. The prediction is that, holding worker characteristics constant, employees in bad jobs receive higher wages than those working under more pleasant conditions. The differentials might also exist due to the higher amount of human capital needed to work in computer programming industry.

The theory underlines that workers among a similar occupation will share similar utility function, then it is possible to measure the characteristics of areas on the mean wage of a particular occupation, however in the case of computer programmers and sanitation worksers, the workers will have different utility functions.

The basic assumption of the theory is that, holding worker characteristics constant, employees in bad jobs receive higher wages than those working under more pleasant conditions but in this case the characterstics of a worker working as computer programmer is different from the sanitation worker.

Rahul Sunny answered 2 years ago

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