A study by Price Fishback and Shawn Kantor of the University of Arizona shows that after the passage of workers' compensation laws, wages received by workers in the coal and lumber industries fell.
Source: Price V.Fishback and Shawn Everett Kantor, "Did Workers Pay for the Passage of Workers' Compensation Laws?" Quarterly Journal of Economics, Vol.100, No.3, August 1995, pp.713-742.
Which of the following could explain why passage of workers' compensation laws led to a fall in wages in some industries?
A)The passage of the workers' compensation laws made it more expensive for firms to employ workers, thus reducing the demand for workers.
B)The passage of the workers' compensation laws allowed employers in hazardous industries to reduce compensating differentials which, in turn, reduce wages.
C)Employers reduced wages to partially offset the cost of having to purchase insurance that would compensate workers for injuries suffered on the job.
D)The supply of labor in these hazardous industries increased following the passage of the workers' compensation laws because jobs in these industries now pose less risk.

Question

Quizplus · Accepted Answer

The passage of workers' compensation laws allowed employers in hazardous industries to reduce compensating differentials which, in turn, reduce wages. Compensating differentials are the additional wages paid to workers in hazardous industries to compensate them for the additional risk they face. With workers' compensation laws, employers no longer need to pay compensating differentials to cover medical expenses and lost wages due to workplace injuries. Thus, the removal of this compensation mechanism leads to a fall in wages.

A Study by Price Fishback and Shawn Kantor of the University