Questions (see bottom of page for answers)
1. Define 'compensating differential'.
2. State three reasons for above-equilibrium wages.
3. What is the name given to the theory which states that
firms use educational attainment as a way of sorting
between high-ability and low-ability workers?
4. Most analyses of wage differences are based on:
a) the average wage model
b) the income inequality model
c) the equilibrium model of the labour market
5. The accumulation of investments in people, i.e. education and on-the-job training, is known as:
a) human investment
b) compensating differential
c) efficiency wages
d) human capital
e) none of the above
Answers: 1. a difference in wages that arises to offset the non-monetary characteristics of different jobs 2. minimun wage laws, trade unions, efficiency wages 3. 'signalling' 4.c 5.d