Chat with AIExam 8: Compensating Wage Differentials and Labor Markets
Assume that safety in the workplace is costly to provide for a manufacturing firm.Draw an isoprofit curve map for the firm with the wage rate on the vertical axis and risk of injury on the horizontal axis.Explain why the graph looks as you have drawn it.
(42) 
VerifiedThe graph should look like Figure 8.3.Profit increases as you move to the southeast in the graph,i.e.,the firm is more profitable at lower wages and higher risk of injury.The isoprofit curves are positively sloped because,in order to maintain a given level of profit,the firm must reduce the wage to offset the cost increase from providing more safety/reducing risk.The isoprofit curves are concave because it becomes progressively more expensive to reduce risk at lower risk levels and,therefore,larger wage reductions are necessary to offset the progressively larger expense of providing more safety.
The theory of compensating wage differentials rests on three assumptions.State and briefly explain each of the assumptions.
(43) VerifiedThe theory of compensating wage differentials predicts that individuals working jobs with poor working conditions earn higher wages than individuals working under more pleasant conditions.This prediction assumes first that workers are utility maximizers (as opposed to income maximizers).A compensating differential could be observed only if it is the case that some people prefer lower paying but more pleasant jobs.The second assumption that the theory relies on is that workers are well informed regarding relevant working conditions.Some undesirable working conditions are obvious,such as night or weekend work,physical stress,lack of autonomy,and so forth.Other poor working conditions may not be at all obvious,such as exposure to a toxic chemical or material that is not as yet recognized as a toxic substance.The third assumption that the theory relies on is that workers are mobile.Workers must have a range of jobs between which they can choose in order to be able to select job characteristics that match their preferences and avoid jobs that do not fit with their preferences.
Worker A and Worker B both prefer to work 8 hours a day when their hourly wage is $12 an hour.They are currently working 8 hours a day and getting $12 an hour.Another employer wants to employ them only 6 hours a day (and requires them to not work in another job).Worker A will demand a higher wage to take the 6 hour job (compared to Worker B. when
(32) VerifiedA
What are the major insights of the hedonic model of compensating wage differentials?
(38) Suppose that firm profitability depends inversely on the wage rate and directly on the level of workplace disamenity X.Consider two firms that differ in their ability to reduce the level of workplace disamenity X.With the wage rate on the vertical axis and X on the horizontal axis,draw a graph of the offer curve.Explain the basis of the offer curve that you've sketched.
(33) Recent research suggests that single mothers with young children likely have indifference curves (wage on the vertical axis and risk of injury on the horizontal axis)that are
(33) Suppose workers at a firm are willing to pay (in foregone after-tax wages )$1200 a year in order to get a fringe benefit.The worker's tax bracket is 40% (so that for every $1000 a firm pays a worker,they get $600 in after-tax take home pay).If a firm gives the worker the fringe benefit and workers reduce their after-tax wage by $1200,how much is wage paid by the firm being reduced by?
(43) Researchers have found that individuals that work night shifts,other things equal,are paid
(35) When workers indifference curves are drawn for wage rates versus injury risk,
(33) If comparable workers are paid an extra $1.00 per hour to work outdoors,then
(33) Suppose that working condition X is an undesirable working condition.Justin and Jessica both have distaste for working condition X,but Justin's aversion to working condition X is greater than Jessica's aversion.Draw a graph with a representative indifference curve for both Justin and Jessica,with the wage rate on the vertical axis and the level of working condition X on the horizontal axis.Explain why the indifference curves look as you have drawn them.
(39) What are the difficulties inherent in estimating compensating wage differentials empirically?
(44) Lawyers work in pleasant surroundings at low risk of injury,but they generally receive higher pay than construction workers.This is because
(41) Utility maximizing workers are interested in both the pecuniary and nonpecuniary aspects of their jobs.What is meant by nonpecuniary in this context? Give some examples of nonpecuniary aspects of a job.How would the nonpecuniary aspects of a job affect compensation?
(36) Holding all other factors constant,workers who are strongly averse to risk will tend to have jobs paying
(33) With the assumptions made in our model,OSHA standards that decrease risk levels in the workplace should establish the allowable risk levels
(39) 
Filters
- Essay(0)
- Multiple Choice(0)
- Short Answer(0)
- True False(0)
- Matching(0)