Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 6 The Economics of Labor Markets
Chapter 19 of 36 Earnings and Discrimination
Section 6 of 16
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Ability:
Why are major league baseball players paid more than minor leaguers?
The higher wage is not a compensating differential.
It’s more pleasant to play in the major leagues, e.g. better playing fields and locker rooms.
The major leagues do not require more years of education nor experience.
Mostly, major league players earn more because they have greater natural ability.
People differ in physical and mental attributes because of heredity and environment.
Some people are physically strong others weak, some are very smart others less smart.
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Effort:
Some people work hard, others are lazy.
Those who work hard are more productive and can earn higher wages.
Firms often reward workers directly by paying them based on their production.
Salespeople are often paid a percentage of the sales they generate.
Others are rewarded with salary raises or bonuses.
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Chance:
Say, a person attends a tech school to learn vacuum tube television repair.
This skill soon after is made obsolete by introduction of solid-state televisions.
The person ends up with a low wage compared to others with similar amount of training.
More generally, by chance a person
· can have a natural ability
· is able to and/or wants to make a strong effort to maximize use of the ability
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When labor economists study wages they mostly relate a worker's wage to measurable variables.
These include years of training and experience, age, and job characteristics.
These measured variables affect a worker's wage, but they account for less than half of the variation in wages.
Because so much of the variation in wages is not measurable, other variables must have a strong effect.
The non-measurable variables include ability, effort and chance.
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What other non-measurable variables besides ability, effort and chance cause variation in wages?
ChatGPT:
Besides ability, effort, and chance, economists recognize several other non-measurable variables that strongly influence wage variation.
These are often difficult to quantify, but they matter greatly in labor markets:
Personality & Soft Skills
Work ethic and reliability e.g. showing up on time, consistency.
Communication and teamwork skills — being persuasive, likeable, or able to lead.
Risk tolerance and ambition, willingness to take challenging or uncertain jobs.
Social Capital & Networks
Who you know: connections through family, friends, alumni groups, or professional associations often lead to higher-paying opportunities.
Reputation: informal reputation in an industry can affect promotions and job offers.
Discrimination & Bias
Race, gender, ethnicity, or age discrimination can suppress wages regardless of productivity.
Appearance and presentation — studies show looks, height, and even accents sometimes influence earnings in ways unrelated to skill.
Firm & Industry Differences
Bargaining power: some workers negotiate better with their employers.
E.g. your employer is willing to give you a 10% wage raise but you only ask for 5%.
Job match quality: whether a worker’s unique talents fit the employer’s needs.
Industry-specific pay norms: two equally skilled workers can earn vastly different wages depending on sector one works in, e.g. finance or education sector.
Institutional & Environmental Factors
Union presence: workers in unionized industries often earn more than otherwise comparable nonunion workers.
Geography: same job pays differently in New York vs. rural states.
Economic cycles: timing of when you enter the job market, e.g. graduating during a recession or boom economy, can have lasting wage effects.
Summary:
Non-measurable variables beyond ability, effort, and chance include personality traits, social networks, bias/discrimination, firm/industry factors, and broader institutional and geographic contexts.
Together, these help explain why two workers with similar education and experience can have very different wages.
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personality traits
seikaku tokusei
性格特性
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