EC120 Chapter Notes - Chapter 19: Human Capital, Making Money, Brown Hair
11/27/15
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EC120 – CHAPTER 19: EARNINGS AND DISCRIMINATION
COMPENSATING DIFFERENTIALS
• Good jobs tend to have lower equilibrium wages than bad jobs due to
greater supply of labour
• COMPENSATING DIFFERENTIAL: A difference in wages that arises to offset
the nonmonetary characteristics of different jobs
o E.g. Coal miners paid more due to job dangers
HUMAN CAPITAL
• HUMAN CAPITAL: The accumulation of investments in people, such as
education and on-the-job training
• Education is the most important type of human capital
o Tied to a single person, which is what makes it human capital
• Workers with more human capital tend to earn more than those with less
• Companies willing to pay more money for higher educated workers because
they tend to have higher marginal products
ABILITY, EFFORT, AND CHANCE
• Natural ability can be a determining factor in the wages people earn
• Those who work hard tend to be more productive and earn higher wages
o E.g. Salespeople earn a commission, they make more when they sell
more
• Chance plays a role in determining wages
o A tradesman whose skill is made obsolete due to an advance in
technology
• These elements are all crucial to determining wages
AN ALTERNATIVE VIEW OF EDUCATION: SIGNALING
• People with a college or university degree, they do not become more
productive, but they signal high quality employees
• Postsecondary degree is a sign of ability
• Education is correlated with natural ability
THE SUPERSTAR PHENOMENON
• There are differences in incomes within occupations
• Superstars arise in markets that have two characteristics:
1. Every customer in the market wants to enjoy the good supplied by the
best producer
2. The good is produced with a technology that makes it possible for the
best producer to supply every customer at a low cost.
• With a larger number of customers, superstardom is more attainable
o Actresses appeal to more people than carpenters
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EC120 Full Course Notes
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Document Summary
Ec120 chapter 19: earnings and discrimination (cid:498)good(cid:499) jobs tend to have lower equilibrium wages than (cid:498)bad(cid:499) jobs due to: compensating differential: a difference in wages that arises to offset. Compensating differentials greater supply of labour the nonmonetary characteristics of different jobs: e. g. Coal miners paid more due to job dangers. Ability, effort, and chance: natural ability can be a determining factor in the wages people earn, those who work hard tend to be more productive and earn higher wages, e. g. An alternative view of education: signaling: people with a college or university degree, they do not become more productive, but they signal high quality employees, postsecondary degree is a sign of ability, education is correlated with natural ability. Discrimination by employers: business owners who care only about making money are at an advantage when compensating against those who also care about discriminating, firms that do not discriminate replace those that do.
