Compensating Wage Differentials Research Articles

Occupational segregation and career advancement

This paper analyzes women's job choice. In order to discriminate between different theories we model the joint determination of occupation and career advancement. Our results support the ‘crowding’ hypothesis of occupational segregation and are against human capital and compensating wage differentials explanations.

The value of job safety for railroad workers

The value of reducing job risk is estimated using a hedonic wage model and a risk variable that is matched by occupation and state of residence. This study is the first to use the hedonic wage approach to estimate the value of safety in a single industry. Industry-specific estimates will help researchers and labor policymakers better understand the distribution of compensating wage differentials across industries. Our estimated value of job safety for railroad workers is between $21,000 and $26,000 (1980 dollars) per statistical disabling injury, which is somewhat larger than the average of values estimated in previous studies that use cross-industry or crossoccupation aggregate risk data.

A Model of Dual Labor Markets When Product Demand Is Uncertain

Dual labor market theory is an attempt to understand observed variation in wages and job quality. The theory argues that market processes tend to produce jobs characterized by high wages and longjob tenure, and (or secondary) jobs that typically offer low wages and short tenure. The key feature distinguishing dual labor market theory from such alternative explanations as human capital theory or the theory of compensating wage differentials, is the nature of the labor market equilibrium. In dual labor market theory, equilibrium is characterized by an excess supply of qualified workers to primary jobs. Mobility between contingent and primary jobs will therefore be limited, and good workers may be stuck in bad jobs.

Explaining the Male-Female Wage Gap: Job Segregation and Solidarity Wage Bargaining in Sweden

The fundamental issue addressed in this paper is why women receive lower wages than men. The relevance of four explanations is investigated: women's responsibility for family and household work, women's lower human capital, compensating wage differentials between men and women, and job segregation The job segregation explanation is given primary attention in these analyses, given that solidarity wage bargaining in Sweden is generally assumed to have promoted equal pay for equal type of job, and hence that no male-female wage differentials ought to exist once the relevant job characteristics are controlled for. Empirical analyses, based on Swedish labour-market data in 1981, show that job segregation indeed explains a sizeable proportion of the gender wage gap, much more than the other three types of factors. A substantial unexplained residual remains, however, net of a large number of individual, family, job and industry characteristics. It is argued that this unexplained wage differential is too large to be explained by misspecification or coarseness of measures The most reasonable interpretation instead is that male and female workers with the same productive attributes, family obligations, and job characteristics receive different hourly wages. The result thus indicates the presence of sex discrimination in the Swedish labour-market, i.e., that solidarity wage bargaining, even at its peak in 1981, did not result in equal treatment of men and women

Unemployment, employment contracts, and compensating wage differentials: michigan in the 1890s

Surveys taken by the Michigan Bureau of Labor and Industrial Statistics in the 1890s reveal that unemployment was pervasive among unskilled workers. The incidence of unemployment was not associated with personal characteristics, but rather with the type of employment contract and job: those with high risk of layoff commanded a wage premium. Seasonality is an important part of this late nineteenth-century story, and the subsequent demise of seasonal activities may have had an important impact on the evolution of labor market institutions.

Compensating wages for long-term job hazards in Canadian industry

The following paper analyzes the compensating wage differentials workers receive for long term health hazards. Occupational and industry fatalities are separated into short-term hazards and long-term hazards. These variables are included in human capital earnings functions in order to see how they impact on workers' wages. The results indicate that workers do receive wage premiums for long-term hazards, like occupational diseases, however they do not receive additional benefits for job-related accidents except at high levels of risk.

Using quit rates to estimate compensating wage differentials in the military

Empirical verification of the theory of compensating wage differentials (CWD) has previously relied on hedonic wage models. This study takes a different approach: it uses the quit rate of workers as a proxy for the disutility of a job. If the quit rates differ between employers, holding wages and preferences constant, that is evidence that non‐pecuniary differences exist between the employers. The CWD can be calculated from the wage difference that equalizes the quit rates between employers, obtained from estimating quit probability equations for each employer. This study uses data on Navy and Air Force enlisted personnel in comparable jobs to estimate the CWD the Navy must pay to retain enlistees at the same rate as the Air Force. The data show that Navy reenlistment rates are lower in five of the seven occupations, although the average wage of Navy personnel is higher in every one. Logit estimates show that the Navy would have to pay wage premiums ranging from 4 to 24 percent to achieve the same reenlis...

Compensating wage differentials for fatal injury risk in Australia, Japan, and the United States

Our research infers the effects of institutionalized wage setting and lengthy worker-firm attachment by comparing estimated compensating wage differentials for fatal injury risk in Japanese, Australian, and U.S. manufacturing. Hedonic labor market equilibrium regressions for Japan reveal a statistically fragile compensating wage differential of 0% to 1.4% for exposure to the average fatality risk compared to employment in a perfectly safe workplace. Australian workers receive a statistically robust 2.5% estimated wage premium. Using new data on work-related fatalities, we find a 1% compensating wage differential in U.S. manufacturing that becomes more positive and statistically less significant as data are aggregated.

Duration, Systematic Risk, and Employee Valuation of Default-Free Pension Claims

Duration, Systematic Risk, and Employee Valuation of Default-Free Pension Claims Introduction The modern economic and financial theory of pensions owes much of its evolution to two distinct but mutually consistent models of the labor market, namely the implicit lifetime contract (LC) model, and the compensating wage differentials (CD) model. (1) Empirical support for both models has been growing in recent years. (2) Under the LC paradigm, a firm's pension promise is a binding obligation which should be valued by the sponsor at the riskless discount rate, so as to reflect the highest degree of certainty that this promise will be honored at muturity. (3) Under the CD model, wages internalize the workers' valuation of pension claims, such that their total compensation equals the value of their lifetime marginal product. (4) Whereas the LC framework clearly identifies the riskless rate as the appropriate discount rate for valuation of the pension obligation by the sponsor, (5) considerable ambiguity appears to surround the appropriate discount rate for employee valuation of the pension claim. Skinner (1980, p. 32), for example, expresses doubt that employees factor risk into this valuation, and dismisses risk as irrelevant for pension accounting. In contrast, the empirical evidence on the CD model cited above appears to confirm that employees factor risk into their valuation of pension claims, as reflected by the corresponding wage differentials. In particular, Smith (1981) provides evidence which suggests that employees demand a risk premium on the pension promise itself, distinctly from any default-risk premium on the plan's under-fundedness. (6) Ippolito (1986, p. 175) also stated that underfunding a pension plan entails payment of a risk premium to the employees, and that this premium constitutes a cost to the sponsor. However, he does not address the notion of a distinct risk premium on the pension promise itself. Furthermore, he explicitly ignores risk premium components in his analysis of the sponsor's pension cost. At the policy level, several studies by Pesando (1982, 1984a, 1984b, and 1985) and by Pesando and Clarke (1983) have invoked the LC-CD framework to analyze recent pension reform initiatives and pension accounting issues, both in Canada and the United States. Invariably, such analyses rest, implicitly or explicitly, on the assumption that the employees share the sponsor's interpretation of the pension contract, and thus value their pension claim by using a riskless discount rate. To the extent that the employees' true (but unobservable) discount rate does or should embody a risk premium (as suggested by the evidence on the CD model cited above), the quantitative analyses in these studies may incorporate significant biases, (7) and reconsideration of their policy implications in this light may be warranted. This, however, would remain largely a matter of conjecture, unless the employees' discount rate for pension promises is assessed in a direct manner. The main purpose of this article is to present a method for performing such an assessment. To our knowledge, no such method has yet been developed. In the process, it is shown that even if employees considered theirn pension claims to be entirely free of default risk, (8) their discount rate, properly determined, would incorporate a premium that compensates them for the systematic risk of this claim. The article is organized as follows: In the first section, the relationship between systematic risk and duration for default-free bonds is formulatied, and numerical estimates of this relationship for Government of Canada (GOC) bonds are presented. The same framework is then applied, in the second section, to formulate the systematic risk of dafault- free pension claims (viewed as long-term bonds) (9) as a function of their duration. Application of this function in the framework of the capital asset pricing model (CAPM) shows how the employees' discount rate for pension claims can be assessed. …

The Plausible Range for the Value of Life––Red Herrings Among the Mackerel

Abstract No abstract available.

Valuing Risk in the Workplace: Market Price, Willingness to Pay, and the Optimal Provision of Safety

The theory of compensating wage differentials, attributable to Adam Smith, suggests that jobs with disagreeable characteristics will command high wages, ceteris paribus. Most empirical tests of this theory with hedonic wage equations implicitly assume that workers' willingness to pay for risk reduction (safety) in the workplace through diminished wages and market valuations of the of these reductions are equivalent. It is shown that this is not the case within the manufacturing sector where willingness to pay exceeds the price (cost) of risk reduction at current levels of risk exposure. Implications for implied value of life estimates are also examined. Copyright 1990 by MIT Press.

Labor Market Segmentation and Job‐Related Risk

Abstract. Labor market segmentation theory calls into question the neoclassical theory of compensating wage differentials, which posits that workers are compensated for job‐related risk. From the perspective of segmentation theory, one would expect secondary workers to experience greater risk on the job with less likelihood of compensation. An empirical examination of worker samples, using discriminant analysis to construct primary and secondary subsamples, reveals that the wages of primary workers vary directly with the probability of job related death, injury and disease. No such relationship holds for secondary workers, who are also shown to experience significantly higher levels of job related risk and disamenity than their primary counterparts.

Industrial Specialization and the Returns to Labor

Comparative advantage and the division of labor make geographic concentration of production within a nation profitable and cause many cities to be specialized in one or a few main industries. Specialized cities, however, suffer greater unemployment risk. The theory of compensating wage differentials predicts that individuals living in more specialized cities will be compensated in the form of higher wage rates. We study the effects of specialization on wages and unemployment in the United States. We find evidence of compensating wage differentials. That firms choose to locate in more specialized, higher-wage cities is indirect evidence of the gains to specialization.

Compensating Wage Differentials and the Duration of Wage 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 the Panel Study of Income Dynamics linked to industry data on injuries and unemployment, we find nearly all the compensating wage differential for losses due to workplace injuries is for increases in the duration of loss and similarly for losses due to cyclical unemployment. 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.

The marriage premium and compensating wage differentials.

This paper proposes and tests an alternative explanation of the marriage premium that relies upon differences in workers' tastes and compensating wage differentials. A key assumption is that marital status proxies for the consumption of family goods, such as children, and that these are costly. Workers whose greater demands for family goods are taste- generated and shown to choose jobs that offer greater wage, and less non-pecuniary compensation. This creates an observed wage premium that has nothing to do with differences in workers' productivities. Supporting empirical evidence for this hypothesis is presented, including a reevaluation of previous studies.

The Importance of Local Fiscal Conditions in Analyzing Local Labor Markets

A new test of the compensating wage differential model is proposed. The logic behind Roback's model showing how differences in nonproduced amenities may be reflected in intercity wage differentials is extended to the case of differences in local fiscal conditions, represented by tax rates and publicly produced services. Results show that differences in local tax rates and services provisions do generate compensating wage differentials across cities. The effects of a particularly large set of taxes and effective services output measures are examined.

Compensating Wage Differentials in the Union and Nonunion Sectors

This paper tests for the existence of structurally different compensating payments in the union and nonunion sectors of the economy. Significant differences may stem from the different mechanisms by which such payments are determined: markets are the primary mechanism in the nonunion sector, while Political processes play a major role in the union sector. The empirical results provide tentative support for the structural differences hypothesis; They also reveal an absence of positive and significant compensating payments in nonunion labor markets.

Compensating Differences in the Canadian Labour Market

The theory of compensating wage differentials originally developed by Adam Smith has only recently been assessed using labour market data. The following paper examines the relationship between job characteristics and earned income in Canada. The results indicate that workers in risky jobs do, ceteris peribus, receive financial compensation for the hazards they face on the job. This paper also includes a number of 'value of life' estimates derived from a hedonic earnings function.

COMPENSATING WAGE DIFFERENTIALS: SOME EVIDENCE FOR BRITAIN

IN this paper we consider the impact of non-pecuniary job attributes on the distribution of male earnings and test the hypothesis that workers who undertake unfavourable or unattractive jobs will be compensated with higher earnings. Despite the fact that the theory of compensating wage differentials was first formally stated more than 200 years ago by Adam Smith, it is only recently that attempts have been made to subject it to empirical verification. Indeed, for Great Britain only the study by Marin and Psacharopoulos (1982) has attempted to use non-pecuniary job attributes (in their case the risk of death or injury) to explain wage differentials. The structure of the paper is as follows. In the next section we outline the methodology and data used in the study. The results of our analysis are then

Workers' Compensation and the Level of Occupational Injuries

Workers' Compensation and the Level of Occupational Injuries