Question 2 (30 points) Suppose there are only two types of job in the economy, a safe job (x = 0) and a risky job (x = 1). Let w0 be the wage paid by the clean job and w1 be the wage paid for doing the dirty job. All workers have the same preferences represented by: = 3

a. If the safe job pays $49 per hour, what is the wage in risky job? (6 points)

b. What is the compensating wage differential? Interpret your finding. (6 points)

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. (6 points)

d. Suppose there is a major trend in the society that perceives risky jobs to be more rewarding. Holding all else constant, what will happen to the amount of compensating wage differential? Illustrate your answer through a supply and demand graph. (6 points)

e. 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 helped by the intervention, hurt by the intervention, or indifferent to the intervention? Explain your answer. (6 points)