Abstract
The theory of compensating wage differentials is generally accepted. It states that firms have to pay wage bonuses for hazardous work. However, there is as yet no strong or even contrary evidence for compensating wage differentials in Germany. By estimating wage regressions with data from the German Socio-Economic Panel (GSOEP) and using individually perceived hazards of work accidents as a risk variable, evidence that firms do pay risk premiums for hazardous work are found even though other effects could dilute the existing wage bonuses. Taking into account these results, the incentives for German firms to invest in accident prevention are discussed in the context of the existing institutional conditions.
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I am grateful for helpful comments from Robert Flanagan, Knut Gerlach, Matthias Kräkel, Edward Lazear, Andrea-Eva Smolka and two anonymous referees. This paper was completed during a stay at the Graduate School of Business at Stanford University, which was made possible by financial support of the DAAD.
