Question

Why wages differ

For each of the scenarios in the following table, indicate the most likely reason for the difference in earnings. Differences Differences in Human Capital Compensating in Natural Differential Labor
Scenario Ability Unions
1. A law firm hires Dina, a recent graduate from law school, and pays her an annual wage of $40,000. It also hires Ana, a second-year law student, and pays her an annual wage of $30,000. Dina and Ana were born in the same country, attended the same university, and studied in the same graduate program.
2. Major league soccer players earn more than minor league soccer players.
3. Three engineers have the same amount of schooling and work experience, but earn different wages. One is a computer engineer who designs and tests new computers for an annual wage of $55,000 per year. Another is a chemical engineer who works in a nuclear lab and performs experiments on radioactive materials for an annual wage of $70,000 per year. The third is a civil engineer who performs daily inspections of cables on a suspension bridge for an annual wage of $93,000 per year

Answer 1

Differences in human capital

Differences in Natural Ability

Compensating differentials

Step-by-step explanation:

Human capital is an example of an intangible asset. It is the economic value attached to labours' skills and expertise.

Qualities of human capital includes

• Education.

• on-the-job training.

• Hard work

• experience

• Mental and emotional well-being.

• People management.

• Communication skills.

In case 1, the law graduate is more educated than the student. thus, differences in human capital accounts for the pay difference

In case 2, the skills of the players differs and this accounts for pay differences

In case 3, pay differs by riskiness of the job. thus compensating differential is responsible for pay differences