Question 5 – (20 points) 2 HW 3 suppose there are only two types of job in the economy, a safe job (r = 0) and a risky job (r

Question 5 – (20 points) 2
HW 3
suppose there are only two types of job in the economy, a safe job (r = 0) and a risky job (r = 1). Let us be the wage paul
U = VW – 31
by the clean job and my be the wage paid for doing the dirty jobs, All workers have the same preferences represented by
If the safe job pays $49 per hour, what is the wage in risky jobT (4 point)
= 49 – (5×0)
$7 = 5W – 5×1) WE 12V
JW = 7+5
= 144
JW = IZZ
b. is the compensating wage differential? Interpret your finding. (4 points)
6144-149
= $95
C.
Suppose that the economy needs more people working in the risky job. Holding all else constant, what will
happen to the amount of compensating wage differential? Illustrate your answer through a supply and demand
graph. (4 points)
LO d.
Suppose there is a major trend in the society that perceives risky jobs to be more rewarding. Holding allele
constant, what will happen to the amount of compensating wage differential? Illustrate your answer through
supply and dentand graph. (4 points)
c. Suppose that all risky jobs could become safe jobs due to significant advancement in safety and security, As a
result, workers who were in risky jobs must therefore accept a pay decrease. Are these workers ed by the
intervention, hurt by the intervention, or indifferent to the intervention? Explain your answer, (4 points)
10

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