Not make economic sense the firms desire to maximize

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not make economic sense, the firm’s desire to maximize its profit would not lead it to make the investment 1. Outcome when there are no government regulations over worker safety 2. Outcome when the government forces firm to improve ventilation system Suppose as in the last case that the cost is $2,000 per worker and value to worker is only $1,000 With no government regulation, wage would be $26,000 and firm’s cost per worker would be $26,000 With government regulation, wage would be $25,000 and firm’s cost per worker would be $27,000
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6 Conclusion: the regulation will raise firm’s costs (leading them to lay off workers) and lower the workers’ wages Both workers and firm will be worse off than they would have been with no regulation 3. Actual response to the new scientific evidence about byssinosis: Firms resisted improving ventilation Firms forced to adopt higher standards by Occupational Safety and Health Administration (OSHA) Why profit-maximization might not lead to socially optimal level of safety investment (a) workers have poor information about the risks But an OSHA employee has a hard task assimilating all the scientific evidence, firm’s costs, and worker’s preferences (b) Workers may have limited mobility (stuck in current job) But, if firm would not lose any workers if it lowered the wage to $23,000, why was it paying them $25,000? One possible answer: if job is riskier, firm would have to raise wage by less than $1,000 because more risk-taking individuals than those currently employed would take the job Source:
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  • Spring '08
  • Kim
  • Economics, Taxation in the United States, Occupational safety and health, negative income tax

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