Problem
Workers can choose to work in two types of jobs: a risky job and a safe job. Suppose there are 100 workers in the economy. Worker l 's reservation price (for accepting the risky job) is $1; worker 2's reservation price is $2, and so on. Because of technological reasons, there are only 10 jobs in the economy that are risky jobs. What is the equilibrium wage differential between safe and risky jobs? Which workers will be employed at the risky firm? Suppose now that an advertising campaign paid for by the employers who offer risky jobs stresses the excitement associated with "the thrill of injury," and this campaign changes the attitudes of the workforce toward being employed in a risky job. Worker 1 now has a reservation price of -$10 (that is, she is willing to pay $10 for the right to work in the risky job); worker 2's reservation price is - $9, and so on. Risky firms still want to hire only 10 workers. What is the new equilibrium wage differential? Why?