Question

1. Define compensating differential and give original examples (not already included in the book or power points) of different jobs that earn higher wages and some that earn lower wages because of compensating differentials.

2. Go to the Education Pays (Links to an external site.) page on the Bureau of Labor Statistics website. Compare and contrast the different levels of education in relation to average wage and unemployment rate.

3. Explain the benefits of higher education in terms of the unemployment rate and average salary figures in the United States per the Education Pays chart.

4. How does this reflect on your own decision to invest in your human capital?

Answer 1

1)Compensating differential is the difference in wages which is offered in order to neutralize the desirableness  and undesirableness  of a job.The differential is positive if the job has risk or the job is not pleasant.Such jobs offer higher wages which acts as incentive to take up the job. Eg coal miners ,sea divers,toilet cleaners ,construction workers who work in high rise buildings are paid higher wages because of the high risk involved.Likewise,a gardener may have the same skill as the toilet cleaner but may be paid less because of no risk involved and because the job is pleasant.

2)People with higher levels of education have higher job prospects and the unemployment rate is less among them . Those who have attained upper secondary education get higher wages than who do not have such education . As statistics show,during the recent pandemic ,unemployment rate was 1.1 % higher for people without a upper secondary education than the people with uper secondary degree.

3)According to the US Bureau of labor statistics data , with increase in educational attaianment, there is fall in unemployment rate and increase in the wages .People with higher education have higher wages as compared to people with less education . US citizens with a profesional degree had the higest household income in 2018 at 160,007 US dollars as compared to a person having education upto the grade 9th, with  26.875 US dollars.

4) My own decision to invest in human capital is positive as more expenditure on human capital ie in education and training,will increase productivity as well as profitability of the company.Education and training are  investment in human capital which increases productivity.