Labour Quality and Wage Differentials

This paper presents a quality theory for labour. Analytical solutions for the equilibrium demand for labour quality equation and the equilibrium wage equation are computed. Wage differentials can be explained by variations in labour quality. A method that yields consistent estimates for all the parameters of the equilibrium demand for labour quality equation, the labour quality index equation, and the equilibrium wage equation is also presented. To illustrate the methodology an application is presented that focuses on the market for seminars and the wages and quality characteristics of trainers.