Question

7. Explain why it may not be the case that the cost of labor compensation

paid to workers represents the true social cost of their labor. 10 points.

Answer 1

This is because the labor compensation paid represents only the private cost of their labor.

The social cost of their labor would include the positive external benefits they impose on the soceity from being employed.

The positive benefits include maintaining a positive and ambitious environment, developing educated families, being responsible citizens etc.

The absence of inclusion of these external benefits make labor compensation an incomplete compensation payment.