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Did we Overestimat the Value of Health?

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  • Rafael Lalive

Abstract

Adam Smith's idea that wage differences reveal preferences for risk rests on firm theoretical foundations. This paper argues, however, that the standard approach to identify these differentials in practice may be flawed. Empirical practice usually identifies compensating wage differentials for risk by regressing individual wages on aggregate measures of risk, usually industry or occupation average risk. If jobs differ within industries or occupations, the ''aggregate approach'' may identify arbitrary compensating differentials for risk. In a dataset with precise information on job risk as well as aggregate risk, I demonstrate that using aggregate risk identifies wage differentials that are two to five times larger than wage differentials based on job risk information. This result is robust to controlling for time constant unobserved individual or job heterogeneity.

Suggested Citation

  • Rafael Lalive, "undated". "Did we Overestimat the Value of Health?," IEW - Working Papers 060, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:060
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    Cited by:

    1. Lavetti, Kurt & Schmutte, Ian M., 2023. "Gender differences in sorting on wages and risk," Journal of Econometrics, Elsevier, vol. 233(2), pages 507-523.
    2. 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.
    3. Xiangdong Wei, 2007. "Wage compensation for job-related illness: Evidence from a matched employer and employee survey in the UK," Journal of Risk and Uncertainty, Springer, vol. 34(1), pages 85-98, February.
    4. Emilia Del Bono & Andrea Weber, 2008. "Do Wages Compensate for Anticipated Working Time Restrictions? Evidence from Seasonal Employment in Austria," Journal of Labor Economics, University of Chicago Press, vol. 26(1), pages 181-221.
    5. 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.
    6. Black, Dan A & Kniesner, Thomas J, 2003. "On the Measurement of Job Risk in Hedonic Wage Models," Journal of Risk and Uncertainty, Springer, vol. 27(3), pages 205-220, December.
    7. Andreas Kuhn & Oliver Ruf, 2009. "The Value of a Statistical Injury: New Evidence from the Swiss Labor Market," NRN working papers 2009-15, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
    8. Jason Sockin, 2022. "Show Me the Amenity: Are Higher-Paying Firms Better All Around?," CESifo Working Paper Series 9842, CESifo.
    9. Andreas Kuhn & Oliver Ruf, 2013. "The Value of a Statistical Injury: New Evidence from the Swiss Labor Market," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(I), pages 57-86, March.
    10. Goucher, Jeremy & Horrace, William C., 2012. "The value of life: Real risks and safety-related productivity in the Himalaya," Labour Economics, Elsevier, vol. 19(1), pages 27-32.
    11. Kuhn, Andreas & Ruf, Oliver, 2009. "The Value of a Statistical Injury: New Evidence from the Swiss Labor Market," IZA Discussion Papers 4409, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    value of life; value of health; compensating wage differentials; occupational illness;
    All these keywords.

    JEL classification:

    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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