Compensating Wage Differentials and the Duration of Wage Loss
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.
|Date of creation:||Apr 1986|
|Date of revision:|
|Publication status:||published as Journal of Labor Economics, Vol. 8, No. 1, Pt. 2, pp. S175-S197, (January 1990).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Duncan, Greg J. & Holmlund, Bertil, 1983.
"Was Adam Smith Right, After All? Another Test of the Theory of Compensating Wage Differentials,"
Working Paper Series
93, Research Institute of Industrial Economics.
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- James D. Adams, 1985. "Permanent Differences in Unemployment and Permanent Wage Differentials," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 29-56.
- Robert S. Smith, 1979. "Compensating Wage Differentials and Public Policy: A Review," ILR Review, Cornell University, ILR School, vol. 32(3), pages 339-352, April.
- Mellow, Wesley & Sider, Hal, 1983. "Accuracy of Response in Labor Market Surveys: Evidence and Implications," Journal of Labor Economics, University of Chicago Press, vol. 1(4), pages 331-44, October.
- Craig A. Olson, 1981. "An Analysis of Wage Differentials Received by Workers on Dangerous Jobs," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 167-185.
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