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According to compensating differential theory:
(a) Should a job with health insurance pay more than a job without (holding all else constant)?

(b) If population data were analyzed, it would likely show that wages are higher (on average) in the jobs that the theory of compensating differentials would predict to be lower. Why would this discrepancy exist?

(c) Explain how an economist might solve the problem confronted in (b) and accurately estimate the compensating differential Explain in sufficient detail, providing an equation if necessary.

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According to compensating differential theory:

(a) Should a job with health insurance pay more than a job without (holding all else constant)?

Ans :

The compensating differential theory argues that workers must pay for employer-provided group health insurance coverage through lower wages or reductions in other fringe benefits. So, a job with health insurance will pay less when compared with a job without health insurance. Because, higher wage rates compensate workers for undesirable working conditions, such as an unsafe or unhealthy work environment or undesirable working hours (the midnight shift), and for incurring additional costs of employment

(b) If population data were analyzed, it would likely show that wages are higher (on average) in the jobs that the theory of compensating differentials would predict to be lower. Why would this discrepancy exist?

Ans :

The theory of compensating wage differentials provides one explanation of wage differences across individuals and across occupations. ...

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