Labor Economics
7th Edition
ISBN: 9780078021886
Author: George J Borjas
Publisher: McGraw-Hill Education
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Question
Chapter 5, Problem 3P
(a)
To determine
Determine the equilibrium wage differential between safe and risky job.
(b)
To determine
Determine the new equilibrium wage differential.
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Q) Suppose that utility for a worker is u(w)=w^.5. If the wage (w) offered is $64, there is a 50% chance of being fired, and switching costs are $28. What is the expected utility for the worker?
Explain it early
22
Suppose there is a negative compensating differential for risk (i.e., the riskier the job is, the less it pays).
a) Under what economic behavior or condition would this make sense?
b) Draw the indifference curves for the above scenario in a carefully labeled risk-wage diagram.
QUESTION 16
Suppose workers can be divided into two groups: high and low skill workers. Let y be the number of years of college education of a worker.
For workers in Group A (high skill workers) the cost of attaining an educational level y is CÃ(y)=$25y; for workers in Group B (low skill workers) the cost of attaining an educational level
y is CB(y)=$65y.
Employees will be offered $410 if they have y ≥ y*, where y* is an educational threshold determined by the employer. They will be offered $50 if they have y y* z
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