Problem 2. Compensating wage differentials: income versus paid vacation Imagine a labour market where workers care about only two aspects of their compensation when choosing employers: wages and paid vacations. Hint: this question is like the wage-safety problem. a) Using a carefully labelled diagram, describe the relationship between wages paid by firms offering longer paid vacations and those offering shorter vacations. In your diagram, assume there are three firms in the same industry but differ in their business models and three workers that differ in their preferences. b) The government is considering imposing a requirement that all firms offer a minimum of four weeks of paid vacation to their employees. Using neoclassical assumptions about worker rationality and preferences, what impact will this regulation have on some of the workers and firms? Draw a separate diagram to illustrate this. What would happen to wages