There are 100 jobs in a town and 100 workers. Forty of the jobs are dangerous, 60 are safe. Workers have the following preferences: worker one dislikes danger by $1, worker two dislikes danger by $2, worker three dislikes danger by $3, and so forth (such that worker hundred dislikes danger by $100). Assume workers are mobile and well-informed and the labor market is mobile. Also assume that safe jobs pay $500 a week. Which of the following statements will be true?

Question

Quizplus · Accepted Answer

Since there are 100 workers and only 40 dangerous jobs, workers who dislike danger will have to enter the safe job market. Their preferences for safe jobs will create a bidding war, driving up the wages for the safe jobs. This means that safe jobs will pay more than $500 a week to attract workers who dislike danger. 
The rent earned by a worker is equal to the difference between the wage they receive and the wage they would have received in their next best alternative. For worker one, their next best alternative is a dangerous job that pays $540 a week (the compensating differential required to offset their dislike of danger). Therefore, worker one will earn rents of $40 a week ($540 - $500). 
For worker hundred, their next best alternative is a safe job that pays $940 a week (the compensating differential required to offset their strong dislike of danger). Therefore, worker hundred will earn rents of $440 a week ($940 - $500). 
Therefore, all of the above statements are true.

There Are 100 Jobs in a Town and 100 Workers