ABSTRACT
The hedonic wage model is a formalization of the concept of compensating wage differentials, which can be traced back to Adam Smith. The basic idea is that, other things being equal, workers will prefer jobs with more pleasant working conditions over those that are less pleasant. The greater supply of workers for pleasant jobs will depress the wage levels of such jobs. In equilibrium, the difference in wages between two jobs with different working conditions, will reflect the workers’ monetary valuations of the differences in working conditions.
