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The Effect of Local Area Unemployment on Compensating Wage Differentials for Injury Risk

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  • Keith A. Bender
  • Hosne Mridha

Abstract

Compensating wage differential (CWD) theory assumes that workers can always find a job without undesired characteristics, which forces firms with disamenities to pay a CWD. However, a simple theoretical variation of standard CWD theory shows that if there is a probability of job loss due to involuntary unemployment, the CWD is lower. When this probability is proxied by local unemployment rates, we find a downward bias in typical estimated CWDs using cross‐sectional data that span many local labor markets. Estimates from the Current Population Survey data show that the bias can be quite large, which in turn impacts the implicit value of injury estimates.

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  • Keith A. Bender & Hosne Mridha, 2011. "The Effect of Local Area Unemployment on Compensating Wage Differentials for Injury Risk," Southern Economic Journal, John Wiley & Sons, vol. 78(2), pages 287-307, October.
    • Handle: RePEc:wly:soecon:v:78:y:2011:i:2:p:287-307
    DOI: 10.4284/0038-4038-78.2.287
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    Cited by:

    1. Donghyun Kim & Up Lim, 2017. "Wage Differentials between Heat-Exposure Risk and No Heat-Exposure Risk Groups," IJERPH, MDPI, vol. 14(7), pages 1-17, June.

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