Compensating differentials are alive and well in Tokoroa

The New Zealand Herald reports:

A South Waikato District Councillor is puzzled as to why they're struggling to fill a well-paid job in the region.

The local district council is advertising for a health and safety manager in the town of Tokoroa, paying around $90,000 a year.

The council's last manager lasted just 12 weeks in the role and the officer before that 18 months.

Chairman of the Finance, Audit and Risk Committee Gray Baldwin told Larry Wiliams he's surprised more people haven't applied.

Some readers might remember a very similar story in 2016 about a general practitioner (also in Tokoroa) who was unable to attract a doctor for $400,000 per year (around double the going rate for a GP). Or the tourist operator in Taumarunui last year, offering an 'Auckland salary' of over $150,000 and similarly unable to find a good candidate.

At the risk of repeating myself, economists recognise that wages may differ for the same job in different firms or locations. Consider the same job in two different locations. If the job in the first location has attractive non-monetary characteristics (e.g. it is in an area that has high amenity value, where people like to live), then more people will be willing to do that job. This leads to a higher supply of labour for that job, which leads to lower equilibrium wages. In contrast, if the job in the second area has negative non-monetary characteristics (e.g. it is in an area with lower amenity value, where fewer people like to live), then fewer people will be willing to do that job. This leads to a lower supply of labour for that job, which leads to higher equilibrium wages. The difference in wages between the attractive job that lots of people want to do and the dangerous job that fewer people want to do is called a compensating differential.

So, why would people be unwilling to take a job in Tokoroa for $90,000? Perhaps the job comes with undesirable non-monetary characteristics (living in Tokoroa might be high on that score for many of us). You have to wonder why the last two people in the job lasted just 12 weeks and 18 months respectively. If this job was worth it for the salary on offer, why did the last two people leave so soon?

Read more:

• Reason to be wary if a job in Taumarunui offers an Auckland salary
• The compensating differential for rural GPs must be enormous