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

11. Fatality rates Cause –Transportation43% –Homicide11% –Falls, struck, crushed29% –Electrocution5% –Chemical exposure2% Demographics –Male 93% –White83% –Black10% –Hispanic12% –Agesteady until age 55,rises afterward Incidence Age < 555/100,000 Age 55-647/100,000 Age > 6414/100,000 Source: National Census of Fatal Occupational Injuries, 1999

12. Fatality rates IndustryDeaths per 100,000 Private Industry4.8 Self-employed11.1 Agriculture20.7 Forestry/Fishing53.7 Mining21.5 Construction14.0 Manufacturing3.6 Transportation/Utilities12.7 Wholesale4.6 Retail2.3 F.I.R.E.1.2 Services1.9 Government2.8 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 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

16. Market Risk Wage UAUA UBUB UCUC ΠCΠC ΠBΠB ΠAΠA Market wage-risk tradeoff: Higher Risk Means Higher Pay

17. Computing market tradeoff between risk and wages W = β 0 + δ RISK + β 1 ED + β 2 EXP + β 3 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 Earnings Function

18. Computing market tradeoff between risk and wages W = β 0 + δ RISK + β 1 ED + β 2 EXP + β 3 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?

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 Risk Wage UAUA UBUB ΠBΠB ΠAΠA R Will restrictions on Risk make workers better off? RARA RBRB WBWB WAWA

21. Market Risk Wage UAUA UBUB ΠBΠB ΠAΠA R Will restrictions on Risk make workers better off? U’ B

22. What if workers do not know risks Risk Wage UBUB ΠBΠB R Worker thinks he is at B’ but is really at B RBRB R’ B U’ B B’ B

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

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. Worker’s Compensation Insurance that pays in the event of a work related injury How does that affect the risk wage tradeoff?