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Compensating Wage Differentials and the Duration of Wage Loss

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Author Info
Daniel S. Hamermesh
John R. Wolfe

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Abstract

Several reasons are offered why workers will receive larger compensating wage differentials for increases in the duration of wage losses than for increases in the probability of loss that produce the same expected loss. A formal model of occupational choice is developed that shows the extent to which the compensation for increased duration exceeds that for increased risk. Using Panel Study of Income Dynamics data linked to industry data on injuries and unemployment, we find:1) Nearly all the compensating wage differential for losses due to workplace injuries is compensation for increases in the duration of loss; 2) Similarly, nearly all the compensation for losses due to cyclical unemployment is compensation for increases in duration, especially for increases in duration beyond the 26 weeks of unemployment that are usually compensated by unemployment insurance. The compensating differentials for risk of injury are larger for union than for nonunion workers, while those for cyclical unemployment are smaller for union workers.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1887.

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Date of creation: May 1990
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Handle: RePEc:nbr:nberwo:1887

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  1. Alan B. Krueger & John F. Burton, Jr., 1989. "The Employers' cost of Workers' Conpensation Insurance: Magnitudes, Determinants, and Public Policy," NBER Working Papers 3029, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. repec:ese:iserwp: is not listed on IDEAS
  3. Emilia Del Bono & Andrea Weber, 2006. "Do Wages Compensate for Anticipated Working Time Restrictions? Evidence from Seasonal Employment in Austria," IZA Discussion Papers 2242, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Elliott, R. F. & Sandy, R., . "Adam Smith May Have Been Right After All: A New Approach to the Analysis of Compensating Differentials," Working Papers 98-02, Department of Economics, University of Aberdeen. [Downloadable!]
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  5. José Varejão & Pedro Portugal, 2003. "Why Do Firms Use Fixed-Term Contracts?," CETE Discussion Papers 0310, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
    Other versions:
  6. John P. Haisken-DeNew & Matthias Vorell, 2008. "Blood Money: Incentives for Violence in NHL Hockey," Ruhr Economic Papers 0047, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  7. Ragui Assaad & Insan Tunali, 2000. "Wage Formation and Recurrent Unemployment," Econometric Society World Congress 2000 Contributed Papers 1623, Econometric Society. [Downloadable!]
  8. Daniel S. Hamermesh, 1997. "Immigration and the Quality of Jobs," NBER Working Papers 6195, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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