The long and costly training required to become a surgeon reduces the
supply of surgeons relative to many other occupations and is one reason
surgeons typically earn very high incomes. This is an equilibrium wage
differential.
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Compensating Differentials
Whenever working conditions differ across jobs, workers will earn
different equilibrium wages. Because such factor-price differentials
compensate for non-monetary aspects of the job, they are commonly
called compensating differentials ; they were introduced into
economics almost 250 years ago by Adam Smith.
Academic researchers commonly earn much less than they could earn in
the world of commerce and industry because of the substantial non-
monetary advantages of academic employment (such as independence
and flexibility). If chemists were paid the same in both sectors, many
chemists would prefer academic to industrial jobs. Excess demand for
industrial chemists and excess supply of academic chemists would then