In: Economics
An economy shows evidence of compensating differentials as a result of risks of injury in the labor market. Specifically, there are two sectors in the economy: a risky one (construction), and a less risky one (tourism). There are two types of workers: workers in group 1 are very risk averse, while those in group 2 are less risk averse.
a) Use a graph to describe the equilibrium in the labour market in this economy.
The government introduces a law that requires companies to invest in technology so that the risk for workers in any of the two sectors does not exceed the equilibrium risk in the tourism sector.
b) What would be the effect of this law on the well-being of group 2?