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Environmental and Resource Economics

, Volume 42, Issue 2, pp 187–209 | Cite as

Compensating Wage Differentials with Unemployment: Evidence from China

  • Xiaoqi Guo
  • James K. Hammitt
Article

Abstract

We estimate the economic value of mortality risk in China using the compensating-wage-differential method. We find a positive and statistically significant correlation between wages and occupational fatality risk. The estimated effect is largest for unskilled workers. Unemployment reduces compensation for risk, which suggests that some of the assumptions under which compensating wage differentials can be interpreted as measures of workers’ preferences for risk and income are invalid when unemployment is high. Workers may be unwilling to quit high-risk jobs when alternative employment is difficult to obtain, violating the assumption of perfect mobility, or some workers (e.g., new migrants) may be poorly informed about between-job differences in risk, violating the assumption of perfect information. These factors suggest our estimates of the value per statistical life (VSL) in China, which range from approximately US$30,000 to US$100,000, may be biased downward. Alternative estimates adjust for heterogeneity of risk within industry by assuming that risk is concentrated among low-skill workers. These estimates, which are likely to be biased downward, range from US$7,000 to US$20,000.

Keywords

China Compensating wage differential Mortality risk Value per statistical life Hedonic wage 

JEL Classifications

I10 J17 J28 

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Copyright information

© Springer Science+Business Media B.V. 2008

Authors and Affiliations

  1. 1.Agricultural, Environmental and Development EconomicsOhio State UniversityColumbusUSA
  2. 2.Center for Risk AnalysisHarvard UniversityBostonUSA

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