Labour Economics Essay

3003 words - 13 pages

Introduction
Imagine that you have just received a degree from a college of engineering and you can choose between two interesting job offers as a result of your job search. The offers are comparable as to all essential characteristics, for example, promotion prospects, location of plants, working hours, and especially the wages. The only difference between the two job offers is that there are irritations of noise and an increased risk of work accidents in firm A while not in firm B. Which job do you choose? Definitely the job in firm B! The only thing firm A could do, is to compensate you for worse working conditions by paying an extra bonus. Compensating wage differentials are where ...view middle of the document...

However, uncertainty of risk that exist in the labour market possesses a choice for worker to choose from between different jobs and different pays that are offered by firms. A fundamental issue in the economics of uncertainty is how individuals process information and make choices under uncertainty where the information of risk is unknown to the workers under imperfect market (Viscusi and Connor, 1984).
The aim for this paper is to discuss the relationship of compensating wage differentials and the risk undertaken by workers in an imperfect market where they have to make decision before knowing the actual risk they might have to take on the job. Several case studies will be pointed out with empirical evidence to support the argument between the relationship of compensating wage differential and undiscovered risk taken by the workers and its implication.

Context
Occupational disease and injury are part of the human and social costs of production. As such, the level of workplace-related injury and disease is influenced by the economic forces that come to bear on firms and their employees. Companies that are in business must produce adequate rate of return so they remain economically viable. Companies that are striving for profits will always in pressure to reduce costs. Unfortunately, it is also the case that many ways of reducing costs also increase workplace hazard (Ashford, 1982). Workers, would of course prefer a safe and healthy workplace, yet securing of this objective may result in reduced wages according to the theory of compensating wage differentials.

Changes of perception towards risk – On-the-job experiences
In the case of the market for dangerous job in a hazard workplace, Viscusi (1979) in his paper of: Adaptive Responses to Chemical Labeling: Are Workers Bayesian Decision Makers? Found that workers risk perceptions were positively correlated with the industry risk and workers who perceived risks received compensating wage differential. Nevertheless, workers in high risk jobs displayed behavior consistent with an adaptive response in which workers accept jobs whose risks are not fully understood, learn about these risks based on their on-the-job experiences and then quit if these experiences are sufficiently unfavorable give the wage of the job.
A survey which shows worker responses to new labels of potentially hazardous chemicals are being carried out. A sample consisted of 335 employees in the chemical industry. Firstly, empirical results before workers receive risk information about the new chemicals are being collected. These findings provide extensive risk-related information that included detailed risk-assessment question and information on whether workers would repeat their job choices. Data is collected as a reference point for subsequent results.
Each worker is then given hazard warning label of 3 new chemicals. “New information” was provided rather than being revealed and informed so as to be able to...

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