Compensating Wage Differentials with Unemployment: Evidence from China
- 249 Downloads
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.
KeywordsChina Compensating wage differential Mortality risk Value per statistical life Hedonic wage
JEL ClassificationsI10 J17 J28
Unable to display preview. Download preview PDF.
- Dillingham EA, Smith RS (1984) Union effects on the valuation of fatal risk. In: Dennis BB (ed) Proceedings of the industrial relations research association 36th annual meeting, San Francisco, CA, December 28–30, 1983. Industrial Relations Research Association, Madison, pp 270–277Google Scholar
- Dorman P (1996) Markets and mortality: economics, dangerous work and the value of human life. Cambridge University Press, CambridgeGoogle Scholar
- Dorsey S (1983) Employment hazards and fringe benefits: further tests for compensating differentials. In: Worrall JD(eds) Safety and the workforce: incentives and disincentives in workers’ compensation. ILR Press, Ithaca, pp 87–102Google Scholar
- National Bureau of Statistics P. R. C. (1996) China statistical yearbook. China Statistics Press, BeijingGoogle Scholar
- National Bureau of Statistics P. R. C. (2003) China labor statistical yearbook. China Statistics Press, BeijingGoogle Scholar
- Riskin C, Zhao R, Li S (2000) Chinese household income project, 1995 [computer file]. ICPSR version. University of Massachusetts, Political Economy Research Institute [producer], Amherst, 2000; Inter-University Consortium for Political and Social Research [distributor], Ann ArborGoogle Scholar
- Smith A (1776) The wealth of nations. University of Chicago Press, ChicagoGoogle Scholar
- State Administration of Work Safety and State Administration of Coal Mine Industry, P. R. C. (2000–2002) China’s work safety yearbook. Coal Mine Industry Press, BeijingGoogle Scholar
- Viscusi WK (1979) Employment hazards: an investigation of market performance. Harvard University Press, CambridgeGoogle Scholar
- World Bank (1997) Clear water, blue skies: China’s environment in the new century. World Bank, WashingtonGoogle Scholar