Page 409 - The Principle of Economics

EARNINGS AND DISCRIMINATION
In the United States today, the typical physician earns about $200,000 a year, the typical police officer about $50,000, and the typical farmworker about $20,000. These examples illustrate the large differences in earnings that are so common in our economy. These differences explain why some people live in mansions, ride in limousines, and vacation on the French Riviera, while other people live in small apartments, ride the bus, and vacation in their own back yards.
Why do earnings vary so much from person to person? Chapter 18, which de- veloped the basic neoclassical theory of the labor market, offers an answer to this question. There we saw that wages are governed by labor supply and labor de- mand. Labor demand, in turn, reflects the marginal productivity of labor. In equi- librium, each worker is paid the value of his or her marginal contribution to the economy’s production of goods and services.
IN THIS CHAPTER YOU WILL . . .
Examine how wages compensate for differences in job characteristics
Learn and compare the human-capital and signaling theories of education
Examine why in some occupations a few superstars earn tremendous incomes
Learn why wages rise above the level that balances supply and demand
Consider why it is difficult to measure the impact of discrimination on wages
See when market forces can and cannot provide a natural remedy for discrimination
Consider the debate over comparable worth as a system for setting wages
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