Chapter 35 Question 029

Why do driveway resurfacing workers in suburbs of Dallas pay half as much as suburbs of Minneapolis? (Daniel Root) Shortly after moving into a residence in suburban Dallas, the homeowner received an offer for a driveway.She did exactly that when she sold her house in suburban Minneapolis.Unexpectedly, the price of raw materials requested by Dallas was about the same as what she spent last time, but the labor cost was only half of what she had spent last time.Why is labor so cheap in Dallas?According to the law of one price, jobs with roughly similar technical requirements and working conditions should have the same salary.The skill required to pave a driveway is the same in Minneapolis as it is in Dallas, and the effort involved is essentially the same.

However, other working conditions may be different between the two places.In particular, Dallas' relatively mild climate allowed paving contractors to work steadily year-round, but Minneapolis' severe winters kept them out of work for several months. (It was pointed out that Neapolis has only two seasons a year: except for July, which is winter.) If winter meant nothing more than a few weeks of unemployed, that wouldn't be much of a hindrance.However, if the work cannot be carried out for several months in a row, if the contractor charges the price according to the Dallas standard, I am afraid that survival will become a problem.

According to Adam.According to Smith's theory of compensatory wage differentials, wages are automatically adjusted for positions requiring similar skills so that occupational conditions tend to be equal.If the conditions of one position are more attractive than those of another, the wages of the former tend to be adjusted downward in reverse.One desirable condition that Smith specifically mentions is continuity of employment.This feature helps explain why Minneapolis contractors earn higher wages than Dallas.Higher wages are necessary to compensate Minneapolis contractors for not being able to work during the winter months.

The fact that demand for driveways in Minneapolis is concentrated in a short construction season (assuming that one wants the driveway to be completed in a given year means that it has to be done within five or six months of that year) further illustrates the two aforementioned factors. Reasons for wage differences across cities.