Discuss how the wage and risk levels are simultaneously determined by employees and the firm. What are the major implications of your analysis?
An argument advanced for a governmental ban on smoking in the workplace is that it would lower the insurance cost because of improved health resulting from the reduction in second-hand smoke. Assuming that this assertion is true, under what circumstances would a firm voluntary ban smoking in the workplace such that a government mandate was not necessary. Explain.
The public employees union in Oregon agreed to a settlement in the early 1980's where they would forgo pay increases over several years in exchange for the state picking up the employee contribution to retirement. However, a recent ballot measure was passed in Oregon requiring public employees to pay their own retirement benefits, which amounted to approximately a 6.5 percent pay cut. Proponents of the measure argued that public employees were being paid too much because private sector firms made their employees pay for their retirement contribution. However, public employee's contended that this was unfair because they had made wage concessions in exchange for the state paying their benefits. Suppose you were hired as an arbitrator in the case to propose a settlement for the dispute. Use your knowledge regarding compensating differentials to analyze this issue. Carefully, explain the factors that would enter into your considerations and how you would rule on the case given those considerations.
Consider two identical jobs, but some jobs are located in Atlanta while others are located in Boston . Everyone prefers working in Atlanta , but the degree of this preference varies across people. In particular, the preference (or reservation price) is distributed uniformly from $0 to $5. Thus, if the Boston wage is $2 more than the Atlanta wage, then 40% (which is two-fifths) of the worker population will choose to work in Boston . Labor supply is perfectly inelastic, but firms compete for labor. There are a total of 25,000 workers. Demand for labor in both locations is described by the following inverse labor demand functions:
Atlanta : wA = 20 – 0.0024EA.
Boston : wB = 20 – 0.0004EB.
Solve for the labor market equilibrium. That is, find the number of workers employed in both cities, the wage paid in both cities, and the equilibrium wage differential.
U.S. Trucking pays its drivers $40,000 per year, while American Trucking pays its drivers $38,000 per year. For both firms, truck drivers average 240,000 miles per year. Truck driving jobs are the same regardless of which firm one works for, except that U.S. Trucking gives each of its trucks a tune-up ever 50,000 miles while American Trucking gives each of its trucks a tune-up every 36,000 miles. This difference in tune-up rates results in a different rate of fatal accidents (because of brake failure) between the two companies. In particular, drivers for U.S Trucking die in an accident once every 12 million miles on average. Comparatively, drivers for American Trucking die in an accident once every 15 million miles on average. What is the value of a trucker's life implied by the compensating differential between the two firms?
