COMPENSATINGWAGEDIFFERENTIALS.pptVIP

(3) THE MATCHING OF EMPLOYER AND EMPLOYEES Graphing worker indifference curves and employer isoprofit curves together can show which workers choose which offers. A’s choice: (WAX, RAX) → value safety higher If A took B’s offer → A1 A2 B’s choice: (WBY, RBY) W Risk WBY WAX RAX RBY A1 B1 A2 B2 X X’ Y Y’ * Since X can produce safety more cheaply than Y, X will be a low-risk producer who attracts employees, like A, who value safety highly. Y attracts people like B, who have a relatively strong preference for money wages and a relatively weak preference for safety. Note: The only offers of j