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Question

Explain why working conditions can either justiy higher wages or make up for lower wages.

Solution

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Answered 2 years ago
Answered 2 years ago

The tougher working conditions are, the bigger the wages will or had to be, as a compensation. It is both logical and rational the same job has to be paid more if done in unpleasant or dangerous conditions rather than the same job in normal conditions. Also, tougher conditions means less workers are able to do it - the supply of such workers is lower, and by free market rules, if supply is scarce the price has to rise. So, equilibrium price of labor in bad conditions is above equilibrium price for same job in normal conditions.

On contrary, some very pleasant working conditions may be frugally paid because they offer conformity instead of the (high) salary. For example, tourist location reviewer enjoys traveling around, so his total reward for work is part in salary, part in hedonism - which means less money. It also has scientific explanation - supply of labor for such job is enormous which moves the equilibrium price down. Demand for labor is limited as well as number of jobs like that is, so with low demand wages experience pressure for further drop.

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