The effect of local area unemployment on compensating wage differentials for injury risk

Keith A. Bender, Hosne Mridha

Research output: Contribution to journalArticle

5 Citations (Scopus)
7 Downloads (Pure)

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.
Original languageEnglish
Pages (from-to)287-307
Number of pages21
JournalSouthern Economic Journal
Volume78
Issue number2
DOIs
Publication statusPublished - Oct 2011

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