Determine which explanation is more plausible

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Reference no: EM13225036

Suppose that an increase in the equilibrium compensating wage differential between risk jobs and safe jobs has been observed. Two reasons for this change have been suggested:

(1) it is now more costly for firms to create safe working conditions and

(2) there is a government advertising campaign that alters preferences, thereby convincing workers to require more compensation to take on
risk.
Using supply and demand diagrams, show how each of the two developments can explain the increase in the compensating wage differential. Can information on the number of workers in the risky occupation help determine which explanation is more plausible?

Reference no: EM13225036

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