2. The wage distributions for three occupations in the Pennsylvania food service

Question

2. The wage distributions for three occupations in the Pennsylvania food services industry are provided below.

Percentile 10% 25% 50%(Median) 75% 90%

Chefs and Head Cooks Hourly Wage $11.62 $14.94 $20.43 $27.71 $35.69

Fast Food Cook Hourly Wage $7.82 $8.30 $8.88 $9.50 $11.28

Waiters and Waitresses Hourly Wage $7.84 $8.30 $8.94 $10.22 $14.33

a) Consider the wage differentials across occupations. How do they compare to the prediction of the Law of One Wage? With respect to your answer, which of the five assumptions of the Law of One Wage do you think is most flawed?

b) Consider the wage differentials within occupations. How does the distribution of chefs and head cooks compare to the distribution for fast food cooks? Why do you think they are so different? Compare the distribution for fast food cooks relative to waiters and waitresses. Comment on the differences or lack thereof.

Explanation / Answer

The theory of equalizing differentials states that in competitive labor markets, workers with similar skills working in similarly attractive jobs and locations should receive similar compensation. Long-run wage differentials are explained by differences in skill and job disamenities, with a single “price” (wage) conditional on worker and job attributes.

2 The law of one wage – equal compensation for equivalent workers and jobs – follows naturally from competitive theory

so according to the question the wage of chefs and head cooks will be higher than fast food and waiters as they are more skilled compared to others.

ASSUMPTIONS-1.Where land is free and labor works without capital, the entire output will go to labor as wages. 2.Where land is free and labor is assisted by capital, wages will consist of the whole produce less what is necessary to induce the storing up of labor as capital.

3.Where land is subject to ownership and rent arises, wages will be fixed by what labor could secure from the highest natural opportunities open to it without paying rent (i.e., the margin of production).

4.Where all natural opportunities are monopolized, wages may be forced by competition among laborers to the minimum at which they will consent to reproduce. Clearly, the margin cannot fall below the point of survival.

b)Chefs and head cooks oversee the daily food preparation at restaurants and other places where food is served. They direct kitchen staff and handle any food-related concerns.

Work Environment-Chefs and head cooks work in restaurants, private households, and other establishments where food is served. They often work early mornings, late evenings, weekends, and holidays. The work can be hectic and fast paced. Most chefs and head cooks work full time. Therefore their pay is high.

The restaurant industry includes a wide range of establishments, from fast-food to full-service restaurants, from food trucks to caterers, from coffee shops to bars. While there are certainly employers in the restaurant industry who provide high-quality jobs, by and large the industry consists of very low-wage jobs with few benefits, and many restaurant workers live in poverty or near-poverty.

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