force chemists’ wages up in industry and down in academia until the two
types of jobs seemed equally attractive on balance.
Compensating differentials also exist in the regional earnings of
otherwise identical factors. People who work in remote logging or mining
areas are paid more than people who do jobs requiring similar skills in
large cities. Without higher pay, not enough people would be willing to
work at sometimes dangerous jobs in unattractive or remote locations.
Can Differentials Be Eliminated?
The distinction between temporary and equilibrium factor-price
differentials raises an important consideration for policy. Trade unions
and governments sometimes have explicit policies about earnings
differentials and seek to eliminate them in the name of equity. The
success of such policies depends to a great extent on the kind of
differential that is being attacked. An important general lesson from this
experience is the following: Policies that attempt to eliminate temporary
differentials may be successful in speeding up what may otherwise be a
slow adjustment process. But policies aimed at eliminating equilibrium
differentials will encounter difficulties.
Canadian governments have introduced legislation to redress male–
female wage differentials that appear to exist only because of
discrimination in the labour market. As the social norms that sustain
these discriminatory forces change, so too will the wage differentials. But
the adjustment may be very gradual. Canadian pay-equity legislation has