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Question: A worker who is typical in all respects, works for a wage of $20,000 per year in a perfectly safe occupation. Another typical worker does a job requiring exactly the same skills as the first worker, but in a risky occupation with a known death probability of 1 in 1,000 peryear, and receives a wage if $22,000 per year.
(a) What is the implied value of the life of a worker with these characteristics?
(b) It has just been revealed that death probability has been severely underestimated in the risky occupation and it actually is twice as much. In such a case, what would you expect the new equilibrium wage to be for the risky occupation? Please explain briefly.
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