Hedonic theory of the wages

The hedonic theory of the wages is one of the models developed in economy of work to give an account of the differences in wages between individuals.

The hedonic theory of the wages aims theoretically to explain the differences in wages between individuals resting on the differences in painfulness of the tasks which they achieve with work.

Origin

The premises of the hedonic theory of the wages can already be found in the work of Adam Smith. However, it is in Rosen that one owes the development of a coherent ideal model in 1974.

Contents of the theory

The simple model established by Rosen gives an account of the heterogeneity of the wages between individuals as a compensation mechanism of the difference in painfulness of each type of work. The theory of Rosen shows that a competitive market will lead to compensate for the workers who carry out a more arduous work by higher wages. The theory of Rosen also shows that a market of pure competition and perfect makes it possible each individual to choose the level of painfulness of its work according to its preferences. Lastly, in a market in pure competition and perfect with tasks of different painfulnesses, the allowance of employment between the various workers is effective within the meaning of Pareto.

Limits of the theory

It should be stressed that the conclusions of the hedonic theory of the wages are applicable only in the event of market corresponding to the traditional assumptions of the pure competition and perfect: atomocity of the salesmen (employed) and the purchasers (employers), perfect information and free entry of the salesmen and the purchasers.

These assumptions are strongly restrictive and the conclusions of Rosen are not necessarily any more valid as soon as these 3 conditions are not met any more.

Thus, in the extreme case of the Monopsone (only one employer), one can show that the differences in wages do not reflect any more the differences of productivity of the workers or painfulness of the tasks.

References

  • Rosen, S. (1974), " Hedonic Prices and Implicit Market", Newspaper off Political Economy , vol. 82, pp. 34-55.
  • Cahuc, P. and Zilerberg, A. (2001), the job market , Brussels, De Boeck, p. 171 and S.

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