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Birds of a feather: Estimating the value of statistical life from dual-earner families

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Abstract

Economists have long employed hedonic wage analysis to estimate income-fatality risk trade-offs, but some scholars have raised concerns about systematic measurement error and omitted variable bias in the empirical applications of this model. Recent studies have employed panel methods to remove time-invariant individual-specific characteristics that could induce bias in estimation. In an analogous manner, this paper proposes to exploit assortative matching on risk attitudes within married couples to control for worker characteristics that are unobserved to the econometrician. I develop and implement a modified hedonic wage estimator based on a within-couple differenced wage equation for full-time working married couples with the Current Population Survey Merged Outgoing Rotation Group over 1996-2002. The key assumption builds on the findings in the assortative matching literature that individuals often marry those who have common traits across many dimensions, including those that may influence worker wages and are correlated with observed occupational fatality risks. This estimator identifies the compensating differential for occupation fatality risk by using within-couple differencing to remove unobserved determinants of risk attitudes and risk-mitigation ability, on which couples match, from the error term. I find that the value of statistical life (VSL) varies from $9 to $13 million (2016$). The within-couple differenced VSL estimates are stable and more robust to variation in specification of the hedonic wage model than conventional, cross-sectional hedonic wage models. I also find that the value of statistical life takes an inverted-U shape with respect to age.

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Notes

  1. All dollar values presented in this paper have been converted to 2016 dollars based on the CPI-Urban deflator.

  2. The exceptions to this include the following. First, the three SIC 2-digit construction industry classifications (15, 16, and 17) are grouped together. Second, there are two pairs of finance, insurance, and real estate industries that are paired together: security and commodity brokers (SIC 62) is paired with holding and other investment offices (SIC 67), and insurance carriers (SIC 63) is paired with insurance agents, brokers, and service (SIC 64). These reflect aggregations in the Current Population Survey.

  3. These can be accessed at: http://www.nber.org/morg/annual/.

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Authors and Affiliations

  1. John F. Kennedy School of Government, 79 JFK Street, Mailbox 114, Cambridge, MA, 02138, USA

    Joseph E. Aldy

  2. Resources for the Future, 1616 P Street NW, Washington, DC, 20036, USA

    Joseph E. Aldy

  3. National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, MA, 02138, USA

    Joseph E. Aldy

  4. Center for Strategic and International Studies, 1616 Rhode Island Avenue NW, Washington, DC, 20036, USA

    Joseph E. Aldy

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  1. Joseph E. Aldy
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Correspondence to Joseph E. Aldy.

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Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Blake Barr and Ken Norris provided excellent research assistance for this project. This research has been supported by the Taubman Center for State and Local Government. Elissa Philip Gentry, Jim Hammitt, Tom Kniesner, Kip Viscusi, and participants at the Vanderbilt Law School Risk Guidelines for a Safer Society Symposium provided excellent comments on an earlier version of this analysis. Aldy also expresses gratitude to the Bureau of Labor Statistics for permission to use the CFOI fatality data. Neither the BLS nor any other government agency bears any responsibility for the risk measures calculated or the results in this paper.

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Aldy, J.E. Birds of a feather: Estimating the value of statistical life from dual-earner families. J Risk Uncertain 58, 187–205 (2019). https://doi.org/10.1007/s11166-019-09303-7

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