Question

Omar’s income is higher than Debbie’s income. Two of the notable differences between their jobs are that Omar must work outside year round (even when it is very hot in the summer and very cold in the winter) and Omar runs a greater risk of being injured on the job. This would seem to suggest that the difference in incomes between the two individuals is

Question 8 options:

	1) due to gender discrimination
	2) an indication of the Labor Theory of Value
	3) a compensating differential
	4) a consequence of Debbie being paid a wage rate below the minimum wage

Answer 1

Omar’s income is higher than Debbie’s income. Two of the notable differences between their jobs are that Omar must work outside year round (even when it is very hot in the summer and very cold in the winter) and Omar runs a greater risk of being injured on the job. This would seem to suggest that the difference in incomes between the two individuals is-

Answer-

In this case, Omar's income is higher than Debbie on the basis of option no. 3) i.e. a compensating differential.

A compensating differential, which is also called a compensating wage differential or an equalizing difference, is defined as the additional amount of income that a given worker must be offered in order to motivate them to accept a given undesirable job, relative to other jobs that worker could perform.

Omar has to work outside throughout the year irrespective of the extreme climatic conditions and he also has a greater risk of being injured on the job.

Let's analyze why other options are not applicable to this case.

1) Gender discrimination -

The gender discrimination (or the gender wage gap) is a metric that tells us the difference in pay (or wages, or income) between women and men. It's a measure of inequality and captures a concept that is broader than the concept of equal pay for equal work.

Differences in pay between men and women capture differences among many possible dimensions, including worker education, experience, and occupation. When the gender pay gap is calculated by comparing all male workers to all female workers – irrespective of differences along these additional dimensions – the result is the 'raw' or 'unadjusted' pay gap. On the contrary, when the gap is calculated after accounting for underlying differences in education, experience, etc., then the result is the 'adjusted' pay gap.

2) An indication of labour theory of value - Labour theory of value suggests that the value of a commodity could be measured objectively by the average number of labor hours necessary to produce it. The best-known advocates of the labor theory were Adam Smith, David Ricardo, and Karl Marx.

4) a consequence of Debbie being paid a wage rate below the minimum wage- Under federal law, if part of your compensation comes from tips, then your employer can pay you significantly less than the minimum wage, as long as your hourly wage plus the average amount that you earn from tips equals the minimum wage.