The key difficulty with explaining wages by job characteristics
is that people of greater ability tend to find themselves jobs with both
higher pay and better working conditions. This means that compensating differentials
tend to be under-estimated, to the extent that differences in abilities cannot
be properly controlled for. Measures of life satisfaction can be used to circumvent this problem, since the effects of income and non-income characteristics of the
workplace can be included as separate determinants of life satisfaction, and the
ratios of coefficients used to calculate compensating differentials. Adam Smith
paid less attention to social capital than either Aristotle or Durkheim. The estimated
compensating differentials for various measures of workplace trust and
engagement are high enough to deserve his attention