Question

After a rash of injuries and deaths in the Big Choke Coal Mine, members of the Parliamentary Workplace Safety Committee are holding public hearings about proposed regulations to increase the level of safety at the Big Choke Mine.

a) An economist trained in the neoclassical theory of compensating wages is hired by the mine company to testify at the committee meeting. She argues that wages at the mine are higher than at any other mine, and that by legislating a higher level of safety, the workers will be made worse off. Outline and evaluate the argument of this economist, describing the conditions under which she makes the correct policy recommendation. Use graphic analysis to illustrate this argument. b) An economist trained in the theory of imperfect information and behavioral economics is hired by the union representing mine workers. He argues that introducing new safety regulations at the Big Choke Mine may lead to the mine workers being better off. Outline and evaluate the argument of the workers’ economist, describing the conditions under which he has the correct policy recommendation. Use graphic analysis to illustrate this argument.

Answer 1

a) A compensating wage differential is define as the additional amount of income that a worker is given to in order encourage them to undertake an undesirable job. Therefore, the economist when argues wages at the mine are higher than at any other mine, and that by legislating a higher level of safety, the workers will be made worse off he talks of the wages which works as compensation for workers by being higher than normal wages. Workers at these wages level maximize their utility any changes in the given scenario will change their optimal point of satisfaction as shown in the diagram

b) An economist who is trained in he theory of imperfect information and behavioral economics argued that introducing new safety regulations at the Big Choke Mine may lead to the mine workers being better off because the theory is based on the idea of imperfect information and the economist assume that mines are not sure about employees IC curve since more is better a new safety rules will increase the optimal satisfaction level of employees.