Compensating Differentials

Firms have an incentive to increase job safety, because then they can lower wages. In this video, we explore this surprising claim in much greater depth. Bear in mind that wages adjust until jobs requiring a similar level of skill have similar compensation practices. Why do riskier jobs often pay more? Why has job safety increased over the years? How does a firm’s profit motive play a role?

Microeconomics Course:http://mruniversity.com/courses/principles-economics-microeconomic

Ask a question about the video: http://mruniversity.com/courses/principles-economics-microeconomics/compensating-differentials-wages#QandA

Next video: http://mruniversity.com/courses/principles-economics-microeconomics/do-labor-unions-raise-wages-workers

1
00:00:00,000 --> 00:00:02,900
♪ [موسيقى] ♪

2
00:00:09,120 --> 00:00:13,824
- في هذه المحاضرة القصيرة أود أن
أوضح الادعاء المثير للدهشة المقدم

3
00:00:13,824 --> 00:00:18,944
في نهاية الفيديو السابق، وهو بالتحديد
أن الشركات لديها حافز

4
00:00:18,944 --> 00:00:22,420
?????? ???? ???????? ???? ?????? ?? ???
?????? ????? ??????.

5
00:00:26,600 --> 00:00:32,450
??? ???? ?? ?????? ???????? ??????? ???????
?? ?? ?????? ??? ??????? ????? ?? ???????

6
00:00:32,630 --> 00:00:38,867
???? ????? ??? ????? ???????
????? ??? ????? ???????

7
00:00:38,867 --> 00:00:45,130
???? ???? ?? ??????? ??? ???????
???? ????? ???? ??????

8
00:00:45,310 --> 00:00:51,160
???????? ???????? ???? ????? ???? ????
???? ????? ???? ?????? ???.

9
00:00:51,340 --> 00:00:55,960
????? ????? ???? ??? ??????
??? ??????? ?????? ????? ???????

10
00:00:56,140 --> 00:01:01,250
????? ??????? ????? ?????? ???? ?????
?????? ???????? ?????? ??????

11
00:01:01,430 --> 00:01:07,230
????? ?????? ???? ???.
????? ??? ??? ??? ??? ????? ???

12
00:01:07,410 --> 00:01:11,860
????? ??? ??????? ??? ?????? ??? ???? ???????
???? ?? ???? ??????? ?? ??????? ????? ???????

13
00:01:12,040 --> 00:01:16,880
??????? ???? ?? ???? ????? ??????? ???????? ??
??????? ????? ???????. ??? ????? ???? ?????????

14
00:01:17,060 --> 00:01:22,610
??? ????? ???????? ????? ???????? ?? ???????
?????? ?????? ??? ?????

15
00:01:22,790 --> 00:01:28,480
????? ????? ????? ?????? ????
?? ?????? ???? ?????? ??????

16
00:01:28,660 --> 00:01:33,430
??? ???? ????? ?? ??????
????? ?? ???????

17
00:01:33,610 --> 00:01:38,590
???? ??? ?????? ????? ??? ???? ??????? ?????
??? ??? ????? ?????? ??? ??? ??? ?????? ???????

18
00:01:38,770 --> 00:01:44,190
?? ????? ???????? ?????? ?? ??? ???? ???
??? ????? ??? ?? ??????? ????? ????

19
00:01:44,370 --> 00:01:50,370
??????? ??? ??????? ????? ????
????? ??? ?????? ??? ??

20
00:01:50,550 --> 00:01:57,340
the extra wages the firm has to pay to
compensate the workers for risk. Moreover,

21
00:01:57,520 --> 00:02:01,202
the more wages that
workers require to take on risk

22
00:02:01,202 --> 00:02:07,344
the greater the firm's incentive to invest
in safety. Now keeping this principle

23
00:02:07,344 --> 00:02:12,040
in mind let's consider this along
with the history of developed countries.

24
00:02:12,590 --> 00:02:17,050
Job safety is much higher today in rich
countries than in poor countries and it's

25
00:02:17,230 --> 00:02:21,880
much higher today than in the past when
rich countries were poorer. Many people

26
00:02:22,060 --> 00:02:25,470
think that this increase in job safety is
due to government regulations and to

27
00:02:25,650 --> 00:02:31,900
unions but in fact those factors have
played only a small role. The major cause

28
00:02:32,080 --> 00:02:38,700
of increased job safety is increasing
wealth and the profit motive. As workers

29
00:02:38,880 --> 00:02:44,620
have become wealthier, they have demanded
higher wages to take on risk and that in

30
00:02:44,800 --> 00:02:50,530
turn has increased the incentive of firms
to make workplaces safer because firms are

31
00:02:50,710 --> 00:02:54,150
able to pay lower
wages for safer jobs.

32
00:02:54,330 --> 00:03:01,440
In other words, rich workers buy more
Plasma TVs and they also buy more

33
00:03:01,620 --> 00:03:07,480
workplace safety. The profit motive is a
reason to supply workers with Plasma TVs

34
00:03:07,660 --> 00:03:14,040
and it's also a reason to supply workers
with safer jobs. There are however two

35
00:03:14,220 --> 00:03:19,650
qualifications. Let's take a look at
those. So the profit motive give firms an

36
00:03:19,830 --> 00:03:25,180
incentive to supply workers with goods
like Plasma TVs and also to supply

37
00:03:25,360 --> 00:03:31,770
workplace safety. This process works
however only when workers know about the

38
00:03:31,950 --> 00:03:38,280
risks. Workers won't accept lower wages to
reduce risks that they don't know about.

39
00:03:38,460 --> 00:03:43,860
Fortunately workers' compensation,
the government required insurance system,

40
00:03:44,040 --> 00:03:48,370
is experience rated. Firms which have
more accidents pay more.

41
00:03:48,550 --> 00:03:53,610
So firms do have an incentive to take
into account hidden risks so long as they

42
00:03:53,790 --> 00:03:59,930
occur when the worker is on
the job. Risks that are hidden

43
00:04:00,270 --> 00:04:04,850
and that don't occur on the job. Things
like risk from asbestos, cancer, radiation

44
00:04:05,030 --> 00:04:10,071
risks and so forth. They will not be
handled very well by the market process or

45
00:04:10,071 --> 00:04:15,340
by workers' compensation. Unfortunately
no system works all that well for hidden

46
00:04:15,520 --> 00:04:20,580
long-run risks but the tort system and
government regulation do have a role to

47
00:04:20,760 --> 00:04:25,100
play in handling these
hidden long-run risks.

48
00:04:25,280 --> 00:04:27,894
Okay that's it for job safety and
compensating variations.

49
00:04:27,894 --> 00:04:29,400
See you next time.

50
00:04:30,450 --> 00:04:35,500
- If you want to test yourself, click
practice questions or if you're ready

51
00:04:35,680 --> 00:04:37,883
to move on just
click "Next video."