1.6.

a. The average person doesn't like working the night shift. According to the theory of compensating differentials, are night-shift wages probably higher or lower than day shift wages?

b. Most companies do their high-skilled work during the day shift: The big meetings, the ma jor deliveries, the crucial repair work-all get done during the day. As a result, firms prefer to hire workers with more human capital during day-shift work, and they prefer to hire less skilled workers at night. According to the theory of human capital, are night-shift wages probably higher or lower than day-shift wages?

c. Just based on these two theories, will night shift work pay more than day-shift work on average, will it pay less on average, or can't you tell with the information given?

d. Economist Peter Kostiuk, in a 1990 article in the Journal of Political Economy, wanted to see whether the theory of compensat ing differentials was true for U.S. workers.

He had information on the wages, educa tion backgrounds, and work experience of U.S. workers, and he knew whether they worked the day shift or the night shift. On average, those who worked the night shift actually earned about 4% less than workers on the day shift. Is this probably because of compensating differentials, or is it probably because of human capital differences?

e. Kostiuk then used statistical techniques to simulate how much a typical low-skilled worker would earn if he were switched from the day shift to the night shift. The answer? The low-skilled worker would earn 44% more money, on average. Is this 44%

wage increase caused by lower supply of night-shift labor, or is it caused by a higher demand for night-shift labor?