Market Power

Musings by an academic economist on the power of markets and the power over markets.

Sunday, March 27, 2005

Compensating Differentials in Action

What are the annual incomes of people who build water towers? According to this article in the Columbia Daily Tribune, they average over $79,000 per year in Missouri (not including benefits and overtime pay). This is a very dangerous job:

Any man on the crew will tell you he earns every penny of his paycheck. The job takes them away from their families more than 300 days a year, and it holds undeniable hazards despite regulated safety precautions. Working some 200 feet above ground, crewmembers straddle beams and stand atop scaffolding, guiding each piece of crane-lifted metal into place and meticulously welding together the 500,000-pound structure.

They must rely on harnesses, hardhats and sheer nerve for their sense of security.

Economists talk about "compensating differentials" in labor markets. Consider two jobs, a dangerous one and a safe one. Other than that, the jobs are exactly the same to workers. Workers in the dangerous job will earn a wage differential that compensates them for the risks on the job. This is a compensating differential.