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


  • Beat Hintermann

    (University of Maryland)

  • Anna Alberini

    (University of Maryland)

  • Anil Markandya

    (University of Bath and Fondazione Eni Enrico Mattei)


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.

Suggested Citation

  • Beat Hintermann & Anna Alberini & Anil Markandya, 2006. "Estimating the Value of Safety with Labor Market Data: Are the Results Trustworthy?," Working Papers 2006.119, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2006.119

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    References listed on IDEAS

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    Cited by:

    1. Fouquet, Roger, 2011. "Long run trends in energy-related external costs," Ecological Economics, Elsevier, vol. 70(12), pages 2380-2389.
    2. 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.
    3. Polat, Sezgin, 2013. "Wage Compensation for Risk: The Case of Turkey," GIAM Working Papers 13-11, Galatasaray University Economic Research Center.
    4. 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, Springer;European Association of Environmental and Resource Economists, vol. 49(3), pages 425-443, July.
    5. Anna Alberini, 2017. "Measuring the economic value of the effects of chemicals on ecological systems and human health," OECD Environment Working Papers 116, OECD Publishing.
    6. Polat, Sezgin, 2016. "Industry Wage Differentials and Working Conditions in Turkey: A Brief Note," MPRA Paper 73165, University Library of Munich, Germany.
    7. Maureen Cropper & James K. Hammitt & Lisa A. Robinson, 2011. "Valuing Mortality Risk Reductions: Progress and Challenges," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 313-336, October.
    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. Konstantinos, Pouliakas & Ioannis, Theodossiou, 2010. "An Inquiry Into the Theory, Causes and Consequences of Monitoring Indicators of Health and Safety At Work," MPRA Paper 20336, University Library of Munich, Germany.
    10. Chris Rohlfs & Ryan Sullivan & Thomas Kniesner, 2015. "New Estimates of the Value of a Statistical Life Using Air Bag Regulations as a Quasi-experiment," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 331-359, February.

    More about this item


    Value of Life; Labor Market; Wage Hedonics;

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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