Hedonic Wage Equilibrium: Theory, Evidence and Policy

81 Pages Posted: 26 Jul 2010

See all articles by Thomas J. Kniesner

Thomas J. Kniesner

Claremont Graduate University - Department of Economic Sciences; Syracuse University - Department of Economics; IZA

John D. Leeth

Bentley University - Department of Economics

Abstract

We examine theoretically and empirically the properties of the equilibrium wage function and its implications for policy. Our emphasis is on how the researcher approaches economic and policy questions when there is labor market heterogeneity leading to a set of wages. We focus on the application where hedonic models have been most successful at clarifying policy relevant outcomes and policy effects, that of the wage premia for fatal injury risk. Estimates of the overall hedonic locus we discuss imply the so-called value of a statistical life (VSL) that is useful as the benefit value in a cost-effectiveness calculation of government programs to enhance personal safety. Additional econometric results described are the multiple dimensions of heterogeneity in VSL, including by age and consumption plans, the latent trait that affects wages and job safety setting choice, and family income. Simulations of hedonic market outcomes are also valuable research tools. To demonstrate the additional usefulness of giving detail to the underlying structure we not only develop the issue of welfare comparisons theoretically but also illustrate how numerical simulations of the underlying structure can also be informative. Using a reasonable set of primitives we see that job safety regulations are much more limited in their potential for improving workplace safety efficiently compared to mandatory injury insurance with experience rated premiums. The simulations reveal how regulations incent some workers to take more dangerous jobs, while workersメ compensation insurance does not (or less so).

Keywords: quantile regression, panel data, VSL, job safety, hedonic labor market equilibrium, OSHA, workersメ compensation insurance

JEL Classification: J2, J3

Suggested Citation

Kniesner, Thomas J. and Leeth, John D., Hedonic Wage Equilibrium: Theory, Evidence and Policy. IZA Discussion Paper No. 5076, Available at SSRN: https://ssrn.com/abstract=1648361 or http://dx.doi.org/10.2139/ssrn.1648361

Thomas J. Kniesner (Contact Author)

Claremont Graduate University - Department of Economic Sciences ( email )

Claremont, CA 91711
United States

Syracuse University - Department of Economics ( email )

Syracuse, NY 13244-1020
United States

IZA

P.O. Box 7240
Bonn, D-53072
Germany

John D. Leeth

Bentley University - Department of Economics ( email )

175 Forest Street
Waltham, MA 02452-4705
United States
781-891-2029 (Phone)
781-891-2896 (Fax)

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