Wages and the Influence of Job Characteristics

Abstract

One of the most well-trafficked areas in labor economics is the identification and measurement of the determinants of wages. Economists and non-economists alike are both interested in why some jobs pay higher wages than others. Labor economists have built a sturdy framework to address this question. First, in theory, wages will reflect a person’s “human capital,” such as their skills, abilities, and knowledge. Most human capital is costly for the worker to obtain so they will do so only if the rewards are adequate. At the same time, this human capital makes them more productive so that firms are able to pay them more. So, when we look at jobs that require higher levels of education, or experience, or talent, we expect to see them paid a higher wage. Second, wages also reflect a job’s “compensating differentials,” such as the usual work activities and working conditions involved. If the conditions are viewed as negative by most workers, they will take this job only if the rewards are adequate. At the same time, if this type of work is essential for the firm, they will be able to pay more.