Question

A small college employs two economists. Rob has been employed by the college for 15 years and Bill has been employed for one year. Rob's salary is significantly higher than Bill s, despite the fact that they both have doctoral degrees in economics. Each professor averages one publication per year and both are excellent teachers. Given this information, the wage difference is best explained by: A. compensating differentials. B. discrimination. C. differences in human capital. D. differences in talent. E. efficiency wages.

Answer 1

E. efficiency wages

Step-by-step explanation:

Clearly this isn't a discrimination case, as Rob has a robust background with the company (15 years). Although their work output may be the same, Rob's experience justifies the higher pay.

This is one form of efficiency wage theory, holding that higher wages lead to increased employee productivity. This way, Rob gets an incentive for staying with the company.