Question

Workers place a value of a 2% decline in injuries sustained while on-the-job at $1500/year. To reduce worker injury rates by 2% would cost employers $300/year per worker. Without safety improvements, current companies offer a salary of $20,000/year. A new company enters the industry with an annual pay rate of $19,000 with the added bonus of reducing injuries by 2%. Given this information:

A. no workers would be willing to work at the new company.

B. the new company would not be able to compete with the existing companies.

C. workers would want to work at the new company.

D. only injury prone workers would want to work at the new company.

Answer 1

Solution

Given that the workers value the 2%decline in injuries at work at $1500 /year.In other words,the utility of 2% decline in injuries for the employees is $1500 /year

But to achieve this the company needs to spend $300 /worker.

Given that there are 2 companies ; one which follows safety and the other which does not.

Current company

Without safety improvements,they are offering $20,000 /year

So,the workers value the job as $18,500 / year i.e., ($20,000 - $1500)

The company needs to pay-out a total salary of $20,300 /year on each to ensure 2% decline in injuries.

New company

Salary paid to each worker is $19,000 / year

So D. only injure prone workers would want to work at the new company as they value the salary at $19,000 .year at the new company vs at $18500 /year at the old company after considering inclusive of cost incurred on reducing the injuries.

If the workers are not injury-prone, A.no workers would be willing to work at the new company ; instead they would prefer working at the existing company as it is offering a higher package.

If there is an option to select more than 2 options then select both the options A &D else select only option A (assuming that every worker irrespective to whether they are prone to inhjuries (or) not,are valuing the 2% decline in injuries)

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