• Explain in General, Intuitive Terms the Theory of Compensating

Essay

• Explain in general, intuitive terms the theory of compensating differentials. There is no need to provide a graphical analysis or to furnish technical details. Your response should address the followi issues:
(1) Explain how it fits onto the primary, neo-classical approach to labour economics.
(2) What are the primary elements (what are the curves in this model actually reflecting)?
(3) What are the two primary implications?
• Illustrate this theory by describing the following phenomena:
• very low wages in the child care sector
• very high wages in the mining sector
• high wages in construction
• Explain why an economist like Adam Smith who subscribes to free-market ideology would find this model so appealing.