Compensating Wage Differentials for Workplace Risks and Local Unemployment - New Evidence for Gender, Union, and Nonunion Workers in the USA

This study estimates the compensating wage differentials (CWDs) for work-related fatal injuries while controlling for the impact of local unemployment on the risk premium. The main argument is that the workers in occupations with fatal injury risk may not be fully compensated for workplace-related injuries in high unemployment areas due to workers’ weakening bargaining power. Two risk measures, employment-based and hour-based injury risks, are used to estimate the effects of different job risks on CWDs using both ordinary least squares (OLS) and the two-stage least squares (2SLS) methods. The risk measures are constructed from the Current Population Survey (CPS) and Bureau of Labor Statistics (BLS) data for the 2012–2016 period. The fatal injury risk data incorporate white and blue-collar occupations by gender and union membership status to estimate CWDs more accurately. The OLS estimates broadly support the theory of CWD. The CWDs for employment-based fatal risks for union, nonunion, and female, and hour-based union workers increase when controlling for the local area unemployment, supporting a negative impact of unemployment on CWDs. Results show that, except for the employment-based male sample, the CWDs for union and male samples are larger than those for the nonunion and female samples. The endogeneity corrected results from the 2SLS confirm that workers receive the CWDs for their exposure to workplace-related fatal risks. However, results find no evidence of the effects of local area unemployment on the CWDs. The estimated values of a statistical life (VSL) of about $4.69 million to $31.79 million derived from OLS estimates are slightly above the estimates reported in the literature. These results are particularly important as an unbiased estimate of the CWD leads to the precise calculation of the VSL. The findings from this study would help policymakers understand the implication behind wage-fatality risk tradeoff in the workplace. The estimates of the VSL would allow them to design policies aimed at reducing workplace-related fatal injury risk and improving the worker’s compensation system.