Question

 Consider the theory of compensating differentials presented in the supplemental lecture. Suppose that workers in the cod fishing industry are mobile and fully aware of the risks associated with their jobs. Moreover, these fishermen are paid significantly more than workers in other industries that have the same skill levels. Now suppose that OSHA imposes safety regulations designed to make fishing safer. According to the theory of compensating differentials:

 a.

 the wages of fishermen will fall and their utility will probably fall

 b.

 the wages of fishermen will fall but their utility will rise

 c.

 fishermen will have safer jobs and their wages will not be affected

 d. 

 the utility of some fishermen will rise and the utility of some fishermen will fall

Answer 1

Answer: c. fishermen will have safer jobs and their wages will not be affected

According to the theory of compensating differentials different types of incentives or compensations are given to the workers in order to increase their productivity and motivate them for choosing the occupation. If OSHA imposes safety regulations for fishing it will reduce the risks for fishermen which will increase their working efficiency