Exercise 10 Compensating Wage Differentials

# Exercise 10 Compensating Wage Differentials - ECO 4616...

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ECOglyph1197 4616 In-Class Exercises glyph1197AME: Prof. Francisca Antman Exercise 10—Compensating Wage Differentials 1. (Borjas 6-4) Suppose all workers have the same preferences represented by U w x , = 2 where w is the wage and x is the proportion of the firm’s air that is composed of toxic pollutants. There are only two types of jobs in the economy, a clean job ( x = 0) and a dirty job ( x = 1). Let w 0 be the wage paid by the clean job and w 1 be the wage paid for doing the dirty job. If the clean job pays \$16 per hour, what is the wage in dirty jobs? What is the compensating wage differential? 2. (Borjas 6-6) Consider a competitive economy that has four different jobs that vary by their
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