Compensating Wage Differentials: The Price of a Dangerous Job

This simulator shows why equally skilled jobs pay differently once working conditions diverge. Two employers need the same skill, but one job is safe and pleasant while the other carries a chosen level of danger or discomfort. At an identical wage, workers overwhelmingly prefer the pleasant job, so the employer offering the unpleasant one must add a wage premium — a compensating differential — to attract willing applicants. Each simulated worker has a private threshold for how much extra pay would make the risk worth it; raising the offered premium pulls in progressively more of them, even the most risk-averse. Raising the job's undesirability level pushes every worker's threshold higher, so the premium required to fill all the open positions rises with it — a direct, adjustable demonstration of how the size of a compensating differential tracks the severity of the underlying condition and the collective risk tolerance of the labor pool.