Question

In: Economics

1. Workers chose to work in a risky or a safe job. Suppose that there are...

1. Workers chose to work in a risky or a safe job. Suppose that there are 100 workers in the economy. Worker 1’s reservation price for accepting risky jobs is $1; worker 2’s reservation price is $2, and so on. Because of technological reasons, there are only 10 risky jobs.

a. What is the equilibrium wage differential between safe and risky jobs?

b. Which workers will be employed in the risky firm?

c. Suppose now that an advertising campaign paid for by the employers who offer
risky jobs stresses the excitement associated with “the thrill of injury” and this campaign changes the attitudes of the workforce towards being employed in a risky job. Worker 1 now has a reservation price of -$10 (that is, she is willing to pay $10 for the right to work in the risky job); worker 2’s reservation price is -$9, and so on. There are still only 10 risky jobs. What is the new equilibrium wage differential?


Solutions

Expert Solution

Reservation price of worker 1 for accepting risky jobs is $10. Therefore his wage minimum is $10. Reservation price of worker 2 for accepting risky jobs is $20. Therefore his minimum wage to choose between safe and risky job is $ 20, worker 3 is $ 30. That is wage differential is $10 which is the common difference.

The worker who is risk lover and whose opportunity cost of accepting the risky job is minimal will accept the risky jobs.

Due to the advertising campaign the workers are well aware of the type of risky job. The first worker is willing to pay $10 , worker 2 is willing to pay $9 and so on.. in order to get the job. Therefore there is no equilibrium wage here. It depends on the bargain and how much amount the worker is willing to pay.

Rahul Sunny answered 2 years ago
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