Question

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?

Answer 1

Labour construction:- A laborer is a person who works in one of the constructiontrades, by tradition, considered unskilled manual labor -- though in practice the laborers are a skilled trade that has reliability and strength as core characteristics.

tourism Market:- Location Marketing. In many cases, tourism marketing centers on attracting people to a specific location without recommending specific sites or accommodations. For some locations, the attractions are so well-known, the tourism marketer simply needs to remind consumers that the area offers a good time What do we mean, then, when we say we want to “become less risk averse?” I think most people think of it like this: Imagine you and I are playing a dice game. I tell you that if I roll a 1,2,3,4, or 5, I’ll give you $110. But if I roll a 6, you have to give me $500. You’re only allowed to play the game once. Will you play? Mathematically, you should, since your “expected value” from playing is slightly above zero. If we played the game 102 times, you would (roughly) earn $9,350 while only losing $8,500. A purely rational actor would play the game since they recognize this positive expected value, but we’re not rational actors. Losses affect us much more than gains, so we generally wouldn’t play this game. This is especially true when we can only play it once, since the possibility of losing $500 outweighs the chance of winning $110. Most people, when they say that they want to become less risk averse, are thinking of situations like this game. They’re saying that they recognize that they wouldn’t take the bet, but that rationally they should, and that they want to get more comfortable with favoring logic over emotion and acting on these seemingly risky yet mathematically beneficial situations. Beyond games, they believe that their problem is that although they can see the pros and cons of going after certain goals, they don’t have the courage to say “screw the risks!” and dive into it head first. But, they are looking at it all wrong.