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In: Economics

Explain how employers and job seekers (employees) agree upon the combination of risk of injury and...

Explain how employers and job seekers (employees) agree upon the combination of risk of injury and wage rate. Be sure to use graphs and explain each component

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Expert Solution

Job seekers have different preferences whereas employers have different one's.

Now if a job is risky, job seekers ask for a higher wage rate which the employers have to provide otherwise there is no one to work for such working conditions. The more the risk of injury, the more is the wage rate. Thus there is a direct relationship between the wage rate and the risk of injury.

This combination between the risk of injury and the wage rate is achieved based on the fact that workers are adequately compensated subject to the condition that there are limited safe jobs available. If there are no safe jobs available than firms might lower the wage rate as workers have no other choice.

On the x axis there is Risk of Injury and on the Y, the wage rate. Now the risk averse person which is X will be paid a lower wage rate by the firm as he is highly risk averse and opts for a job which has less risk of injury,

Whereas Y who is moderately risk averse will be paid a higher wage rate as his job is risky, thereby the firm compensates the worker for the risk factor.

Rahul Sunny answered 8 months ago
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