The idea of compensating differential relates to giving a worker an additional amount of income to motivate him or her to accept a given challenging job compared to other jobs available. Wage premium, a form of compensating differential, refers to an average wage that particular workers earn that is greater than those of their colleagues in the same job (Choi and Ramos 12). Workers earn wages according to the number of hours, days, or weeks that they work. For instance, if an employee works for more hours or days than others do, he/she earns wage for the extra hours spent at work as opposed to other workers.
One example of a career path that involves wage premium is that of a security guard. Guards who take up night shifts tend to be paid higher wages than those in day shifts. The difference comes from the danger and risk that a guard is exposed to during the night as opposed to daytime. Most crimes like theft happen at night because few people are on the watch; therefore, a night guard is exposed to a significant risk of being harmed. They are also paid more because their working environment is less comfortable than daytime guards in terms of lower temperatures, roaming wild animals and others.
Wage premium is also evident in this career path when security guards are paid extra for working on days like national holidays. Most organizations close their businesses on holidays, but we always see their security guards being present. For this, they are given additional amounts to their usual wages to motivate them to work on holidays, days that they would have been enjoying doing something else other than guard duty; like being with the family.
Choi, Hoon, and Ramos, Raul. “The Union Wage Premium in a Segmented Labor Market: New Evidence from Korea.” Journal of the Asia Pacific Economy, 2021, pp: 1-18.