{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Problem Set 7 - Compensating Wage Differentials April 5...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Compensating Wage Differentials April 5, 2010 1. Suppose there ar 100 workers in the economy in which all workers must choose to work a risky or a safe job. Worker 1’s reservation price for accepting the risky job is $1; worker 2’s reservation price is $2, an so on. Because of technological reasons there are only 10 risky jobs. (a) What is the equilibrium wage differential between safe and risky jobs? Which workers will be employed at the risky firm? (b) Suppose that over time the attitude of workers towards being employed in the risky job changes. Worker 1 now has a reservation price of - $10, worker 2 has a reservation price of - $9, and so on. There are still only 10 jobs. What is the new equilibrium wage differential? 2. Suppose that a drop in the compensating wage differential between safe jobs and risky jobs has been observed. Two explanations have been put forward. One is a supply side explanation and the other is a demand side explanation. Use supply and demand diagrams to show how each of the two can explain the drop in the compensating wage differential.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern