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A Model of Worker Investment in Safety and Its Effects on Accidents and Wages

  • Guardado, José R.


    (American Medical Association)

  • Ziebarth, Nicolas R.


    (Cornell University)

In this paper, we develop a theoretical model of worker investment in safety. Standard theory assumes that injury risk is exogenous. It predicts that riskier jobs are associated with higher wages. In contrast, in our model, workers make individual safety investments that reduce the risk of injury. This results in a negative association between individual injury risk and wages. We test the model's predictions using obesity as a proxy for worker disinvestments in human capital and safety. In line with our model predictions, we find a significant positive compensating wage differential (CWD) for nonfatal risk at the occupational level. At the same time, however, there exists an underlying significant negative association between individual accident risk and wages, but only in high risk occupations. The latter relationship may downward bias or mask CWD estimates.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7428.

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Length: 43 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7428
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  1. Darius N Lakdawalla & Robert T Reville & Seth A Seabury, 2007. "How Does Health Insurance Affect Workers' Compensation Filing?," Economic Inquiry, Western Economic Association International, vol. 45(2), pages 286-303, 04.
  2. John Cawley & Johanna Catherine Maclean, 2010. "Unfit for Service: The Implications of Rising Obesity for U.S. Military Recruitment," NBER Working Papers 16408, National Bureau of Economic Research, Inc.
  3. Sabia, Joseph J. & Rees, Daniel I., 2012. "Body weight and wages: Evidence from Add Health," Economics & Human Biology, Elsevier, vol. 10(1), pages 14-19.
  4. Burkhauser, Richard V. & Cawley, John, 2008. "Beyond BMI: The value of more accurate measures of fatness and obesity in social science research," Journal of Health Economics, Elsevier, vol. 27(2), pages 519-529, March.
  5. Lindeboom, Maarten & Lundborg, Petter & van der Klaauw, Bas, 2010. "Assessing the impact of obesity on labor market outcomes," Economics & Human Biology, Elsevier, vol. 8(3), pages 309-319, December.
  6. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
  7. Kamhon Kan & Myoung‐Jae Lee, 2012. "Lose weight for a raise only if overweight: Marginal integration for semi‐linear panel models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(4), pages 666-685, 06.
  8. Keith A. Bender & Hosne Mridha, 2011. "The Effect of Local Area Unemployment on Compensating Wage Differentials for Injury Risk," Southern Economic Journal, Southern Economic Association, vol. 78(2), pages 287-307, October.
  9. Jason F. Shogren & Tommy Stamland, 2002. "Skill and the Value of Life," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1168-1197, October.
  10. Rea, Samuel A, Jr, 1981. "Workmen's Compensation and Occupational Safety under Imperfect Information," American Economic Review, American Economic Association, vol. 71(1), pages 80-93, March.
  11. Gegax, Douglas & Gerking, Shelby & Schulze, William, 1991. "Perceived Risk and the Marginal Value of Safety," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 589-96, November.
  12. Hristos Doucouliagos & T.D. Stanley & Margaret Giles, 2011. "Are Estimates of the Value of a Statistical Life Exaggerated?," Economics Series 2011_2, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  13. Lakdawalla, Darius & Philipson, Tomas, 2009. "The growth of obesity and technological change," Economics & Human Biology, Elsevier, vol. 7(3), pages 283-293, December.
  14. W. Kip Viscusi & Joseph E. Aldy, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," NBER Working Papers 9487, National Bureau of Economic Research, Inc.
  15. Kochi Ikuho & Taylor Laura O, 2011. "Risk Heterogeneity and the Value of Reducing Fatal Risks: Further Market-Based Evidence," Journal of Benefit-Cost Analysis, De Gruyter, vol. 2(3), pages 1-28, August.
  16. Thomas Kniesner & W. Viscusi & James Ziliak, 2010. "Policy relevant heterogeneity in the value of statistical life: New evidence from panel data quantile regressions," Journal of Risk and Uncertainty, Springer, vol. 40(1), pages 15-31, February.
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  18. repec:reg:rpubli:282 is not listed on IDEAS
  19. Thomas J. Kniesner & W. Kip Viscusi & Christopher Woock & James P. Ziliak, 2012. "The Value of a Statistical Life: Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 74-87, February.
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  21. Kan K & Lee M, 2009. "Lose Weight for Money Only if Over-Weight: Marginal Integration for Semi-Linear Panel Models," Health, Econometrics and Data Group (HEDG) Working Papers 09/19, HEDG, c/o Department of Economics, University of York.
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