Final answer:
A compensation plan that pays experienced employees more than new ones is known as seniority-based pay, which aligns with the principle of 'equal pay for equal work' and tends to be well-regarded for rewarding experience.
Step-by-step explanation:
A compensation plan where experienced employees are paid more than new employees is known as seniority-based pay or longevity pay. This approach is popular with both economists and the general public because it effectively increases the payment received for work as an employee gains more experience. This idea is linked to the principle that individuals doing work requiring similar skill, training, or education should receive equal pay, known as the doctrine of 'comparable worth' or 'equal pay for equal work'.
Unions often advocate for seniority-based compensation, resulting in union workers typically working with more or better physical capital equipment and being more productive than nonunion workers. However, an increase in wages can also incentivize firms to invest in machinery to maintain productivity with fewer workers, leading to a dynamic where firms need to balance the cost of higher wages against the cost and benefits of increased capital investment.