Good attributes

1
Hypothesis Workers of equal skill paid the same
wage if workers are mobile Evidence Wages
differ One reason Jobs differ in factors other
than wage

• Good attributes
• Indoors
• Pleasant work environment
• Flexible hours
• Good benefits
• Nice community amenities

• Bad attributes
• Hazardous
• Dirty
• Cold, wet, stormy
• Long hours
• Unstable labor demand

2
Jobs Rated Almanac

• Ranking of jobs based on
• Salary
• Stress
• work environment
• career outlook
• Security
• physical demand,

3
Federal Reserve Bank of Dallas. Have A Nice Day
The American Journey to Better Working
Conditions.2000
4
Compensating Differential Wage increase
required to get worker to accept a bad job
attribute or the wage decrease a worker is
willing to accept to get a good job attribute
5
Example of compensating differentials

• Two sector model
• Two jobs Garbage collector Floor sweeper
• Equal skill requirement
• Garbage collection considered to have more bad
  job amenities

6
Example of compensating differentials

• What if taste for bad amenity differ?
• The case of flower picking and pollen

7
Quality of life ratings
8
Risk
Federal Reserve Bank of Dallas. Have A Nice Day
The American Journey to Better Working
Conditions.2000
9
Federal Reserve Bank of Dallas. Have A Nice Day
The American Journey to Better Working
Conditions.2000
10
Federal Reserve Bank of Dallas. Have A Nice Day
The American Journey to Better Working
Conditions.2000
11
Fatality rates

• Cause
• Transportation 43
• Homicide 11
• Falls, struck, crushed 29
• Electrocution 5
• Chemical exposure 2
• Demographics
• Male 93
• White 83
• Black 10
• Hispanic 12
• Age steady until age 55,rises afterward
• Incidence
• Age lt 55 5/100,000
• Age 55-64 7/100,000
• Age gt 64 14/100,000

Source National Census of Fatal Occupational
Injuries, 1999
12
Fatality rates

• Industry Deaths per 100,000
• Private Industry 4.8
• Self-employed 11.1
• Agriculture 20.7
• Forestry/Fishing 53.7
• Mining 21.5
• Construction 14.0
• Manufacturing 3.6
• Transportation/Utilities 12.7
• Wholesale 4.6
• Retail 2.3
• F.I.R.E. 1.2
• Services 1.9
• Government 2.8

Source National Census of Fatal Occupational
Injuries, 1999
13
Tradeoff between risk and wages Worker Higher
risk means need higher wages to compensate
Worker tradeoff characterized by indifference
curve all combinations of risk and wages that
yield the same level of utility
14
Tradeoff between risk and wages Risk aversion,
risk neutral and risk loving
15
Tradeoff between risk and wages Firm Reducing
risk is costlyfirm needs to be able to lower
wage to make back some of the higher costs Firm
tradeoff characterized by isoprofit line all
combinations of risk and wages that yield the
same level of profit
16
Market
UC
UB
Wage
?C
UA
?B
?A
Market wage-risk tradeoff Higher Risk Means
Higher Pay
Risk
17
Computing market tradeoff between risk and wages
Earnings Function
W ß0 d RISK ß1 ED ß2 EXP ß3 EXP2 ?Z
e d is a measure of the dollar change in the
wage from a unit increase in risk Measures of
risk Incidence of death per 100,000 per
year Injury rates
18
Computing market tradeoff between risk and wages
W ß0 d RISK ß1 ED ß2 EXP ß3 EXP2 ?Z
e Moore and Viscusi 1990 using 1982 data Risk
measured as deaths per 100,00 per yr d 0.027
(/hr.) Value of saving a life 0.027
(/hr)2000(hr/yr)100,000(worker years) 5.4
million In 2006 dollars, 11.4
million Implications for large firms vs. small
firms?
19
Regulatory Choices

• Equipment Standards Government sets specific
  requirement for each machine, piece of clothing,
  plant layout,
• Rigid
• Enforceable
• Performance Standards Government sets level of
  outcomes, firm decides how to meet standard
• Flexible
• Hard to enforce
• Information

20
Market
UB
Wage
?B
UA
WB
?A
Will restrictions on Risk make workers better off?
WA
Risk
R
RA
RB
21
Market
UB
UB
Wage
?B
UA
?A
Will restrictions on Risk make workers better off?
Risk
R
22
What if workers do not know risks
UB
UB
Wage
?B
B
B
Worker thinks he is at B but is really at B
RB
Risk
R
RB
23
Does OSHA (Occupational Safety and Health
Administration) Work?
1970 Act April 1971 OSHA starts How do you
assess how many injuries or deaths have been
eliminated because of OSHA?
24
Does OSHA (Occupational Safety and Health
Administration) Work?
Hard to find a break in the time series
25
Theodore K. Courtney and Edward A. Clancy A
Descriptive Study of U.S. OSHA Penalties and
Inspection Frequency for Musculoskeletal
Disorders in the Workplace. AIHA Journal , 1998
26
(No Transcript)
27
Does OSHA (Occupational Safety and Health
Administration) Work?

• Inspect 1/200 firms per year
• Bias toward investigating large firms
• Grandfather old firms
• Small fines, first violation typically a warning
• Injury rates smallest in smallest and largest
  firms

28
Workers Compensation

• Insurance that pays in the event of a work
  related injury
• How does that affect the risk wage tradeoff?