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Estimating the value of safety with labour market data: are the results trustworthy?

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  • Beat Hintermann
  • Anna Alberini
  • Anil Markandya

Abstract

We use a panel dataset of UK workers, combined with risk data at the four-digit industry level, to look for evidence of compensating wage differentials for workplace risk. We discuss various econometric problems associated with the hedonic wage approach, namely the instability of the estimates to specification changes, unobserved heterogeneity and endogeneity. We find evidence of significant compensating wage differentials and Values of a Statistical Life (VSL) figures only under the most restrictive assumptions, i.e. when we assume that there is no unobserved heterogeneity and that all regressors are exogenous. However, the VSL values are large and vary dramatically with the inclusion or exclusion of industry and/or occupation dummies, as well as with the addition of nonfatal risk. When we specify models that allow for heterogeneity and endogeneity of risk and of other regressors, we find no evidence of compensating wage differentials. We conclude that if compensating differentials for risk exists, econometric problems and the changing nature of labour markets prevent us from observing them. We also conclude that models and techniques for panel data that account for unobserved heterogeneity and endogeneity present a completely different picture about compensating wage differentials than that inferred by most wage-risk studies, which have generally used single cross-sections of data.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 42 (2010)
Issue (Month): 9 ()
Pages: 1085-1100

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Handle: RePEc:taf:applec:v:42:y:2010:i:9:p:1085-1100

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References

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Citations

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Cited by:
  1. Rohlfs, Chris & Sullivan, Ryan & Kniesner, Thomas J., 2012. "New Estimates of the Value of a Statistical Life Using Air Bag Regulations as a Quasi-Experiment," IZA Discussion Papers 6994, Institute for the Study of Labor (IZA).
  2. Cropper, Maureen & Hammitt, James & Robinson, Lisa, 2011. "Valuing Mortality Risk Reductions:Progress and Challenges," LERNA Working Papers 11.11.345, LERNA, University of Toulouse.
  3. Muhammad Rafiq & Mir Kalan Shah, 2010. "The Value of Reduced Risk of Injury and Deaths in Pakistan—Using Actual and Perceived Risk Estimates," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 823–837.
  4. Anna Alberini & Milan Šcasný, 2010. "Context and the VSL: Evidence from a Stated Preference Study in Italy and the Czech Republic," Working Papers 2010.66, Fondazione Eni Enrico Mattei.
  5. Pouliakas, Konstantinos & Theodossiou, Ioannis, 2010. "An Inquiry into the Theory, Causes and Consequences of Monitoring Indicators of Health and Safety at Work," IZA Discussion Papers 4734, Institute for the Study of Labor (IZA).
  6. Wehn-Jyuan Tsai & Jin-Tan Liu & James Hammitt, 2011. "Aggregation Biases in Estimates of the Value per Statistical Life: Evidence from Longitudinal Matched Worker-Firm Data in Taiwan," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(3), pages 425-443, July.
  7. Polat, Sezgin, 2013. "Wage Compensation for Risk: The Case of Turkey," GIAM Working Papers 13-11, Galatasaray University Economic Research Center.
  8. Dennis Guignet & Anna Alberini, 2013. "Can Property Values Capture Changes in Environmental Health Risks? Evidence from a Stated Preference Study in Italy and the UK," Working Papers 2013.67, Fondazione Eni Enrico Mattei.
  9. Thomas Götschi & Beat Hintermann, 2013. "Valuation of public investment to support bicycling (FV-09)," Working papers 2013/02, Faculty of Business and Economics - University of Basel.

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