ECON4006 Final 2019

Question 1

Suppose that all workers have the same preferences represented by

$$U=2\sqrt{w}-0.5x$$

where $w$ is the wage rate and $x$ is the level of the riskiness of a job. Furthermore, there are only two types of jobs in the economy, a risk-less job $(x=0)$ and a risky job $(x=4)$. Let $w_0$ be the wage paid by the risk-less job and $w_1$ be the wage paid for doing the risky job. If the clean job pays $16 per hour, what is the wage rate in risky jobs? What is the compensating wage differential?

考点

Occupational Wage Differentials