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Compensation Mechanisms for Job Risks

Compensation Mechanisms for Job Risks: Wages, Workers' Compensation, and Product Liability

Michael J. Moore
W. Kip Viscusi
Copyright Date: 1990
Pages: 208
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  • Book Info
    Compensation Mechanisms for Job Risks
    Book Description:

    In this major new work, Michael J. Moore and W. Kip Viscusi explore the question, "How are workers compensated for exposing themselves to the risk of physical injury while on the job?" The authors detail the diverse nature of labor market responses to job risks and the important role played by compensation-for-risk mechanisms. Following an overview of the literature, they present a number of unprecedented results. Comprehensive and systematic discussions of issues such as wage-risk tradeoffs, the effects of workers' compensation on wages and risk, the role of unions, and the role of product liability suits in job-related injuries make the volume an essential work for all those interested in risk policy and workplace safety. Among the major results presented for the first time are the first estimates of the value of life derived from recently released occupational fatality risk data from the National Traumatic Occupational Fatality Survey. From these same data the authors also demonstrate that higher workers' compensation benefit levels significantly reduce fatalities on the job--a finding that challenges virtually every other treatment of this topic.

    Originally published in 1990.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-6085-2
    Subjects: Political Science, Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Figures
    (pp. ix-x)
  4. List of Tables
    (pp. xi-xii)
  5. Preface
    (pp. xiii-xvi)
  6. Abbreviations and Symbols
    (pp. xvii-2)
  7. One Overview
    (pp. 3-11)

    Each week, 125 American workers are killed by on-the-job accidents. Although this performance record represents an improvement over earlier years, society’s aspirations with respect to job safety have risen during this period as well, as increased wealth has created an increased demand for safety and a willingness to support government efforts to foster improvements in safety.

    Discussions of such modes of intervention generally follow two themes. First, while many people feel that health and safety outcomes result from a random and capricious process, over the past decade, economists have established the importance of market responses to job risks, in terms...

  8. Two The Research Context of the Analysis
    (pp. 12-33)

    Interest in the labor market effects of adverse working conditions dates from the beginnings of modern economics. Adam Smith ([1776] 1937), in the famous passage from Book 10 ofThe Wealth of Nations,was the first to note that wages must adjust to differences in the conditions of work.¹ More recently, labor economists have sought to verify this proposition in a variety of contexts. The standard approach, which involves the regression of some measure of compensation on a measure of the nonpecuniary characteristics associated with the worker’s job, generally provides support for the classic model of compensating wage differentials for...

  9. Three The Performance of Workers’ Compensation as a Social Insurance Program
    (pp. 34-52)

    The starting point for our analysis is an exploration of how the wage and workers’ compensation mechanisms interact. Although there has been a decade of literature on empirical estimates of compensating differentials for job hazards,¹ analysts have only recently begun to focus on the role of the workers’ compensation system in affecting these differentials.² From a conceptual standpoint, one would expect workers' compensation to play a significant role, since the employer can compensate workers for job risks either through ex ante compensation (compensating wage differentials) or ex post compensation (such as workers’ compensation benefits). The relative importance of the two...

  10. Four Net Workers’ Compensation Costs: Implications of the Wage Offset
    (pp. 53-68)

    Since the early 1970s, there has been a dramatic change in the market for hazardous jobs. The government began direct control of workplace technology through occupational safety and health regulations, while the judicial system became an active player in the area of ex post compensation of job risks.¹ This compensation for long-term health risks, particularly for asbestos workers, may run in the tens of billions of dollars.²

    Much of the reason for the focus of public attention on these developments is that they represented a change in the role that these institutions played. Although the federal government has long had...

  11. Five Workers’ Implicit Value of Life
    (pp. 69-81)

    One very prominent and controversial application of benefit assessment is the valuation of policies that reduce the risks to human life.¹ From a conceptual standpoint, the task of valuing life is no different from that of any other public policy. The appropriate benefit measure for a safety-enhancing policy is society’s willingness to pay for the expected number of lives extended as a result of the policy.²

    Policy analysts typically estimate the value of life from labor markets because the availability of information on risks in labor markets and the associated wage rates that workers receive enable estimation of the market-generated...

  12. Six The Value of Life: Quantity Adjustments and Implicit Rates of Time Preference
    (pp. 82-97)

    The focus of the preceding chapter was on the value of the statistical life of the average worker. This emphasis is in keeping with the literature on this topic, but it does not fully reflect all of the dimensions of exposures to risk of death. Two simplifying assumptions are made in Chapter 5 and elsewhere. First, the measure of risk used—the probability of a fatal or nonfatal accident—abstracts altogether from life cycle issues, such as variation across individuals in the potential losses resulting from death or injury.¹

    Second, upon incorporating life cycle effects, the choice of an appropriate...

  13. Seven Worker Learning and the Valuation of the Compensation Package
    (pp. 98-110)

    The compensating wage differential model underlying the analysis in the preceding chapters assumed that workers value their wage and workers’ compensation components on the basis of full job risk information. In this situation, market forces generate positive wage differentials for ex ante compensation for exposure to this risk. Similarly, there are wage offsets for the increases in ex post compensation for risk embodied in workers’ compensation benefits.

    The general character of this result remains unaffected even if one takes into account potential imperfections in worker information, as in Viscusi (1979a, 1979b, 1980a, 1980b, 1980c). However, the potential for learning about...

  14. Eight The Role of Unions in Altering the Structure of Risk Compensation
    (pp. 111-120)

    The discussion thus far has addressed wages and workers’ compensation in isolation from the labor market context of these compensation mechanisms. Perhaps the most salient omission is that unions have not entered the analysis. It has been well established that unions alter both the wage level and the nature of the compensation package, so it would be surprising if unions had no influence whatsoever on the wage–workers’ compensation tradeoff as well.¹

    The union role is unclear, however, since benefit levels are set exogenously by state workers’ compensation boards. Trade unions probably have little effect on actual benefit levels at...

  15. Nine The Effects of Workers’ Compensation on Job Safety
    (pp. 121-135)

    A key economic and regulatory issue pertains to the efficacy of different compensation mechanisms in promoting safety. The primary market mechanism of compensating differentials creates substantial incentives for safety. The Occupational Safety and Health Administration (OSHA) provides an additional institutional mechanism for direct regulation of risks. OSHA policies have failed to fulfill their initial promise, however, as observed safety effects are statistically significant, but of small magnitude.¹

    As a substitute for regulatory policies, some economists advocate an injury tax approach, not unlike the funding mechanism for workers’ compensation.² This approach could potentially enhance safety levels, but most formal statistical evidence...

  16. Ten Tort Liability Remedies for Job Injuries: Product Liability and Its Interaction with Workers’ Compensation
    (pp. 136-161)

    Recent attention devoted to the emerging product liability crisis has highlighted the increased role played by tort remedies for individual accidents. Before the advent of workers’ compensation, workers pursued legal remedies for individual accidents in much the same manner as they did in litigation for product-related injuries.¹ Tort liability remedies were replaced by administrative compensation systems in most states, but in recent years tort liability suits have reemerged as a prominent source of compensation for job injuries (Weiler, 1986).

    The significance of the role of the different institutions that address job injuries is suggested by a review of the economic...

  17. Eleven Conclusion
    (pp. 162-164)

    The generally accepted economic analysis of the role of compensating differentials does not go far enough in terms of capturing the complexity of the systematic operation of labor market forces in the job safety area. Workers receive some wage rewards in return for facing greater risks of injury and death, and we presented new evidence that suggests the labor market value of life is much greater than previously believed. In addition, we broke down the implicit value of job injuries into monetary and nonmonetary components. Our analysis was also consistent with the dynamic aspects of the labor market relationship between...

  18. Appendix A. Estimation of the Value of Life Using Flexible Functional Forms
    (pp. 165-167)
  19. Appendix B. A Conceptual Model of Worker and Firm Responses to Insurance Benefits
    (pp. 168-172)
  20. Notes
    (pp. 173-180)
  21. Bibliography
    (pp. 181-188)
  22. Index
    (pp. 189-189)