Suppose that all workers value a 1 percent reduction in the workplace injury rate at $1,000 per year. The cost of reducing the injury rate by 1 percent is $200 per year for each worker. Firms currently pay $20,000 per year to workers, without any effort to improve safety. If new firms began to offer workers $19,500 and a 1 percent reduction in the injury rate, then:
A)no workers would be willing to work at the new firms.
B)the new firms would not be able to compete with the existing firms.
C)workers would want to work at the new firms.
D)only injury prone workers would want to work at the new firms.

Question

Quizplus · Accepted Answer

Since workers value a 1 percent reduction in the workplace injury rate at $1,000 per year, the new firms offering workers $19,500 and a 1 percent reduction in the injury rate would save each worker $500 per year ($1,000 - $200). Therefore, workers would want to work at the new firms despite the slightly lower wage.

Suppose That All Workers Value a 1 Percent Reduction in the Workplace