Suppose that we observe most janitors with red hair earn $8 per hour and most janitors with brown hair earn $6 per hour. The National Organization for Equality (NOE) also notices and holds a press conference decrying the lack of wage equality in the janitorial profession. Suppose that you take a closer look at the data and discover that most of the red hair workers are in hot, noisy factories, while most of the brown hair workers are in quiet, air-conditioned office buildings.

a) Making use of a diagram that properly illustrates the compensating differential model of job attributes, explain to NOE how the concept of compensating differentials may completely explain the wage differential. Be sure to clearly label your diagram.

b) Suppose that despite your insightful analysis, NOE successfully lobbies for a law requiring brown-hair janitors to earn $8 per hour as well. Use the model to further illustrate what effect this mandate will have on the utility of brown hair janitors. You should assume that rather than making less than zero profits a firm will shut down, but that there are plenty of jobs available at operating firms. Also assume that there are no market imperfections.

c) Now suppose that there are hidden dangers to working in air-conditioned office buildings. For example, workers may suffer from "sick building syndrome" where the lack of outside ventilation causes health problems. Using a diagram, illustrate what effect the NOE mandate may have on the utility of brown-hair janitors if when making their current job choices they are unaware of their risk of developing "sick building syndrome."