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DIFFERENTIALS AND DISEQUILIBRIUM
In a free enterprise system, workers aim at maximizing their wages. Hence, it would be expected that workers would move form low-paying industries to high-paying industries and the low-paying industries would raise wages so as to retain labour until wage rates were uniform for all workers.
In practice, however, we observe differentials in wages both between occupations and even within the same occupations. Differentials arising from the characteristics of the occupations are called compensating or equalizing differentials, because they represent pay units made to equalize the net remuneration and compensate the workers for differences in their jobs.
Model Specification We proceed with the model specification in the following steps. 1) The economy is composed of competitive firms (F in number) and identical workers
a) What do you understand by equilibrium National Income and to what extent is economic growth beneficial to an economy? b) Explain using both diagrams and mathematical tools,
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