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The Effect of Local Area Unemployment on Compensating Wage Differentials for Injury Risk

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Author Info

  • Keith A. Bender

    ()
    (Department of Economics and Graduate Program in Human Resources and Labor Relations, University of Wisconsin–Milwaukee, PO Box 413, Milwaukee, WI 53201, USA kabender@uwm.edu)

  • Hosne Mridha

    ()
    (School of Business, North Carolina Central University, 1801 Fayetteville Street, Durham, NC 27707, USA hmridha@nccu.edu)

Abstract

Compensating wage differential (CWD) theory assumes that workers can always find a job without undesired characteristics, which forces firms with disamenities to pay a CWD. However, a simple theoretical variation of standard CWD theory shows that if there is a probability of job loss due to involuntary unemployment, the CWD is lower. When this probability is proxied by local unemployment rates, we find a downward bias in typical estimated CWDs using cross-sectional data that span many local labor markets. Estimates from the Current Population Survey data show that the bias can be quite large, which in turn impacts the implicit value of injury estimates.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 78 (2011)
Issue (Month): 2 (October)
Pages: 287-307

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Handle: RePEc:sej:ancoec:v:78:2:y:2011:p:287-307

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Nikolaos Georgantzis & Efi Vasileiou, 2012. "Are dangerous jobs paid better? European evidence," Working Papers 2012/18, Economics Department, Universitat Jaume I, Castellón (Spain).
  2. Guardado, José R. & Ziebarth, Nicolas R., 2013. "A Model of Worker Investment in Safety and Its Effects on Accidents and Wages," IZA Discussion Papers 7428, Institute for the Study of Labor (IZA).

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