Estimating the Value of Safety with Labor Market Data: Are the Results Trustworthy?

43 Pages Posted: 28 Sep 2006

See all articles by Beat Hintermann

Beat Hintermann

University of Maryland - Department of Agricultural & Resource Economics

Anna Alberini

University of Maryland - Department of Agricultural & Resource Economics

Anil Markandya

Basque Centre for Climate Change (BC3); University of Bath

Date Written: September 2006

Abstract

We use a panel dataset of UK workers to look for evidence of compensating wage differentials for workplace risk. Risk data are available at the four-digit industry level or at the three-digit occupation level. We discuss various econometric problems associated with the hedonic wage approach, namely measurement error, instability of the estimates to specification changes, and endogeneity. We find that if we assume a classical measurement error, the true risk signal would be completely drowned out in our data, which would imply a severe downward bias of the OLS coefficient on risk. But this prediction is at odds with our OLS estimates of the VSL, which are large, especially for blue collar workers. Further, the coefficient on risk changes varies dramatically with the inclusion or exclusion of industry and/or occupation dummies, as well as with the addition of nonfatal risk. When we instrument for risk, which we treat as endogenous with wage, and apply 2SLS or a procedure suggested by Garen (1988), we find negative associations between risk and wages for all workers, which is against the notion of compensating wage differentials, or, for blue-collar workers, extremely large VSL figures. Finally, we exploit the panel nature of our data to apply various estimation procedures (the "within" estimator, GLS and the Hausman-Taylor procedure) that correct for unobserved heterogeneity and endogeneity. The coefficient on risk is usually negative and insignificant for the sample of all workers, which once again questions the notion of compensating wage differentials. For blue-collar workers we obtain reasonable VSLs, but the association between risk and wages is not statistically significant. We conclude that if compensating differentials for risk exist, measurement error, other econometric problems, and the changing nature of labor markets prevent us from observing them. We also conclude that models and techniques for panel data that account for unobserved heterogeneity and endogeneity seem more reliable than the techniques typically employed with cross-sectional data.

Keywords: Value of Life, Labor Market, Wage Hedonics

JEL Classification: D16, H43, J17, J28, J31

Suggested Citation

Hintermann, Beat and Alberini, Anna and Markandya, Anil, Estimating the Value of Safety with Labor Market Data: Are the Results Trustworthy? (September 2006). FEEM Working Paper No. 119.06, Available at SSRN: https://ssrn.com/abstract=932510 or http://dx.doi.org/10.2139/ssrn.932510

Beat Hintermann (Contact Author)

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States

Anna Alberini

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States
301-405-1267 (Phone)
301-314-9091 (Fax)

Anil Markandya

Basque Centre for Climate Change (BC3)

Gran Vía 35-2
Bilbao, Vizcaya 48009
Spain

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
89
Abstract Views
1,366
rank
309,166
PlumX Metrics