Abstract-We address long-standing concerns in the literature on compensating wage differentials: the econometric properties of the estimated value of statistical life (VSL) and the wide range of such estimates. We confront prominent econometric issues using panel data, a more accurate fatality risk measure, and systematic application of panel data estimators. Controlling for measurement error, endogeneity, latent individual heterogeneity possibly correlated with regressors, state dependence, and sample composition yields VSL estimates of $4 million to $10 million. The comparatively narrow range clarifies the cost-effectiveness of regulatory decisions. Most important econometrically is controlling for latent heterogeneity; less important is how one does it.
This paper revisits the earnings losses following a workplace injury, accounting for injured workers who did not apply for workers’ compensation and a comparison group of uninjured workers. Selection of the injured group and the comparison group is important. Excluding those who do not apply for benefits overstates the earnings losses, while using less severely injured workers as a comparison group underestimates the earnings losses. Additionally, differentiating whether the injury resulted in a work‐limiting disability highlights that it is not the injury event, but rather the subsequent disabilities that drive the earnings losses.
Abstract-We address long-standing concerns in the literature on compensating wage differentials: the econometric properties of the estimated value of statistical life (VSL) and the wide range of such estimates. We confront prominent econometric issues using panel data, a more accurate fatality risk measure, and systematic application of panel data estimators. Controlling for measurement error, endogeneity, latent individual heterogeneity possibly correlated with regressors, state dependence, and sample composition yields VSL estimates of $4 million to $10 million. The comparatively narrow range clarifies the cost-effectiveness of regulatory decisions. Most important econometrically is controlling for latent heterogeneity; less important is how one does it.
The results support the proposition that, when employees work overtime, adverse outcomes--and indirect costs--do not increase with advancing age in any kind of wholesale fashion. Where rates of adverse outcomes do increase, they are confined to certain subgroups of employees doing certain types of work and occur on certain dimensions at certain levels of longer work hours. It is argued that carefully calibrated approaches vis-à-vis older workers are needed to maximize employer capacity to address the unique challenges posed by this increasingly important portion of the workforce.
A prominent theoretical controversy in the compensating differentials literature concerns unobservable individual productivity. Competing models yield opposite predictions depending on whether the unobservable productivity is safety-related skill or productivity generally. Using five panel waves and several new measures of worker fatality risks, first-difference estimates imply that omitting individual heterogeneity leads to overestimates of the value of statistical life, consistent with the latent safety-related skill interpretation. Risk measures with less measurement error raise the value of statistical life, the net effect being that estimates from the static model range from $5.3 million to $6.7 million, with dynamic model estimates somewhat higher.
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