Question

Max and Eli both graduated from the police academy. Max chose to work in a large city with high crime rates, while Eli chose a job in a small rural town with low crime rates. Although both have the same credentials, and both are members of the union, Max is paid a higher salary than Eli. This wage differential is a likely example of______________.

Answer 1

Answer: Compensating differentials.

Explanation:

Compensating differential is the additional amount of money that a worker is given in order to motivate the worker to accept an undesirable job. Compensating differentials is as a result of the risk of injury, risk of future unemployment, risk of unsafe environment and it explains why there is difference in pay between different regions

Even though Max and Eli have the same skill and are members of the same trade union, Max is paid higher than Eli because Max works in an area with high crime rate while Eli's area has a low crime rate. Thus, Max higher is expected because the cost of living is higher in a city and also due to higher crime rates which means he's likely to work mire than Eli.  

Answer 2

Answer: compensating differentials

Explanation: Often riskier or undesirable jobs (jobs with negative job characteristics) are better paying than jobs with positive characteristics such as safety. Compensating differential accounts for this difference in pay as it describes the relationship between the pay rate and the unpleasantness, risk, or other undesirable attributes of a job. Compensating differential is defined as the difference in income that motivates a worker to accept an undesirable job, relative to other jobs that worker could perform.