Transcript Hypothesis: Workers of equal skill paid the same

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
Jobs Rated Almanac
Ranking of jobs based on
Salary
Stress
work environment
career outlook
Security
physical demand,
Federal Reserve Bank of Dallas. Have
A Nice Day: The American Journey to
Better Working Conditions.2000
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
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
Example of compensating differentials
What if taste for bad amenity differ?
The case of flower picking and pollen
Quality of life ratings
Risk
Federal Reserve Bank of Dallas.
Have A Nice Day: The American
Journey to Better Working
Conditions.2000
Federal Reserve Bank of Dallas. Have A Nice Day: The American Journey to Better
Working Conditions.2000
Federal Reserve Bank of Dallas. Have A Nice Day: The American Journey to Better
Working Conditions.2000
Fatality rates
Cause
–
–
–
–
–
Transportation
Homicide
Falls, struck, crushed
Electrocution
Chemical exposure
43%
11%
29%
5%
2%
Demographics
–
–
–
–
–
Male
White
Black
Hispanic
Age
•
•
•
•
Incidence
Age < 55
Age 55-64
Age > 64
93%
83%
10%
12%
steady until age 55,rises afterward
5/100,000
7/100,000
14/100,000
Source: National Census of Fatal Occupational Injuries, 1999
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
Retail
F.I.R.E.
Services
Government
4.6
2.3
1.2
1.9
2.8
Source: National Census of Fatal Occupational Injuries, 1999
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
Tradeoff between risk and wages
Risk aversion, risk neutral and risk loving
Tradeoff between risk and wages
Firm: Reducing risk is costly—firm 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
Market
UC
UB
Wage
ΠC
UA
ΠB
ΠA
Market wage-risk tradeoff:
Higher Risk Means Higher Pay
Risk
Computing market tradeoff
between risk and wages
Earnings Function
W = β0 + δ RISK + β1 ED + β2 EXP + β3 EXP^2 + γZ + ε
δ 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
Computing market tradeoff
between risk and wages
W = β0 + δ RISK + β1 ED + β2 EXP + β3 EXP^2 + γZ + ε
Moore and Viscusi 1990 using 1982 data
Risk measured as deaths per 100,00 per yr
δ = 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?
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
Market
UB
Wage
ΠB
UA
WB
ΠA
Will restrictions on Risk
make workers better off?
WA
RA
R
RB
Risk
Market
UB
U’B
Wage
ΠB
UA
ΠA
Will restrictions on Risk
make workers better off?
R
Risk
What if workers do not know risks
U’B
UB
Wage
ΠB
B’
B
Worker thinks he is at B’ but
is really at B
R’B
R
RB
Risk
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?
Does OSHA
(Occupational
Safety and Health
Administration)
Work?
Hard to find a break in the
time series
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
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
Worker’s Compensation
Insurance that pays in the event of a work
related injury
How does that affect the risk wage tradeoff?