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Hedonic Wage Models

The quality of a product, a job offer, or working environment plays a major role in the utility, satisfaction, or pleasure that is derived from consumption and production. In the hedonic model, the key explanatory variables are related to quality. When this concept is applied to the labor market, the hedonic wage model posits that there are compensating wage differentials. In other words, jobs that are more demanding, unpleasant, or have less desirable working conditions will command higher wages. Thus, jobs with dangerous circumstances or lackluster on-the-job amenities will have a higher wage. Different workers have varying preferences and appetites for risk. In a competitive labor market, workers will select jobs that provide them with the most satisfaction or utility. There are numerous wage-risk combinations ...

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