1. Some people have asserted that the concept of compensating wage differentials

Question

1. Some people have asserted that the concept of compensating wage differentials for unfavorable job characteristics cannot exist in industries in which union contracts force salaries and benefits to be the same across firms. Assume that all of the State University of New York (SUNY) campuses are restricted to pay the same salaries to professors (in truth they are not) and offer the same benefit packages to professors (in truth they do). However, some SUNY campuses offer faculty members 2 course (or lower) teaching loads per semester, while others require their faculty members to teach 4 courses per semester. If SUNY campuses were the only higher education institutions in the state and all faculty members prefer lower teaching loads to higher teaching loads, is there any way that supply decisions by professors and hiring decisions by the institutions could lead to the existence of compensating wage differentials for the work load differences?

Explanation / Answer

Since some campuses offer lower work load as compared to other campuses, the applications for teaching would be higher in the low-load campuses as compared to high-load campuses.

This would make all the highly productive and efficient professors to apply in low-work-load campuses, while the low quality workers who are unable to find themselves a good job would apply in high-work-load campuses, in order to ensure they are employed.

This would make the quality of professors different in the two campuses. As a result, professors and even campuses would be willing to accept/offer different wages, based on applications.

Hence, difference in the quality of teacher supplied would automatically make the wages different, as their willingness to accept the type of job would differ.

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