One Implication of Compensating Differentials Is That Laws Passed to Protect

question 23

Multiple Choice

One implication of compensating differentials is that laws passed to protect the health and safety of workers may not make workers better off than they were prior to the passages of the laws.Why is this so?

• A)Workers may suffer from cognitive dissonance, which means that the perception workers have that their jobs are hazardous is not true.
• B)If the laws make the work environment safer, there is no reason to pay workers a compensating differential for the risk associated with their jobs.
• C)The principal-agent problem that exists in the workplace may cause workers to shirk more after the work environment becomes safer.
• D)In non-competitive markets, workers are unlikely to receive a compensating differential to compensate for jobs with extra risk. As a result, after the laws are passed their wages will not change.

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Definitions:

Total Taxes

The aggregate amount of taxes paid by an individual, corporation, or other entity to governmental authorities within a specified period.

Payroll Tax

Taxes imposed on employers and/or employees, usually calculated as a percentage of the salaries that employers pay their staff.

Capital Intensive Techniques

Production processes that require a high investment in capital assets relative to labor.

Regressive Tax

A tax applied uniformly, taking a larger percentage of income from low-income earners than from high-income earners.