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Suppose workers can choose to work in two types of jobs: a risky job and a safe job. Because of technological reasons there are only 50 jobs in the economy that are safe. Another 90 jobs require working in a risky environment. There are 40 Type A (minimum acceptable Compensating Wage Differential (CWD) for the risky job is $2) and another 100 Type B workers (minimum acceptable CWD is $3) in the economy.
i) What is the equilibrium CWD between safe and risky jobs?
ii) Which workers would earn positive economic rent, and what is the amount of economic rent earned? Why?
iii) Which workers are earning no economic rent? Why?
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