4 - Max Haubold Chapter 5 Workers or firms can freeiy...

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Unformatted text preview: Max Haubold Chapter 5 Workers or firms can freeiy enter and exit a competitive labor market —>single wage in the economy if all jobs are alike and ail workers are aiike Job characteristics influence the nature of labor market equilibrium _ Compensating wage differentials arise to compensate workers for the non wage characteristics of jobs 5-1: The Market for Risky Jobs‘ Reservation Price- The amount of money it will take to bribe someone into a riskyjob Q=(a|pha)E* (alpha)=lViPL _ (pi)=p(alpha)E*-wE* (theta}=p(alpha1)-p(alpha0) —> doliar gain per worker when moving from safe to risky Safe w1—w0>theta risky w1-w0<theta 5-2: The 'Hedonic Wage Function lsoprofit curve- all points yield same level of profits - Upward sloping—>costs money to produce safety .- Wage—risk combinations that iie on a higher isoprofit curve yield lower profits /concave Hedonic Wage Function- summarizes the relationship betWeen the wage that workers get paid and job characteristics (The wage increase offered by a slightly riskierjob) 5-3: Policy Application: How much is a life worth? — Value ofa statistical iife-> don’t know who wiil die - wage(no risk)+compensation x number of workers 5-4: Policy Application: Safety and Health Regulations - Government regulations reduce worker utiiity and employer profit; but, Imperfect information 5-5: Compensating Differentials and Job Amenities - Ability bias- more skiliedO gets wages higher and amenities higher 5-6: Policy application: Health insurance and the labor market Summary — The worker's reservation price gives the wage increase that will persuade the worker to accept a job with an unpleasant characteristic, such as risk of injury. - The worker will switch to a riskierjob if the market-compensating wage differential exceeds the worker’s reservation price — . Firms choose whether to offer a risky environment or safe environment to their workers. Firms that offer a risky environment must pay higher wages; firms that offer a safe environment must invest in safety. The firm offers whichever environment is more profitable. — The market-compensation wage differential is the dollar amount required to convince the marginal worker (that is, the iast worker hired) to move to the riskierjob. — If a few workers enjoy working in jobs that have a high probability of injury and if these types of jobs demand relatively few workers, the market wage differential wiii go the ”wrong” way. In other words, risky jobs wiil pay iower wages than safe jobs. — There is a ”marriage" of workers and firms in the iabor market. Workers who dislike particular job characteristics (such as risk of injury) match with firms that do not offer those characteristics; workers who like the characteristics match with firms that provide them. ‘ — The value of a statisticai iife can be calcuiated from the correlation between the worker’s wage and the probability of fatai injury on the job. _- Workers with high earnings potential are likely to earn more and to have-more generousjob benefits. This positive correlation generates and ability bias that makes it difficult to find evidence that fringe benefits generate compensating wage differentials. 1“ ”1L. («Itf’kud 5C- wx 55"uwwfkf Varikiuigi- fut-'3' 1‘5"} a? “faith; fitness Plat“; dévafi‘w’ slrLc can/M” “‘93 3911556. 55901520» Cufdfl, ...
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