Citation

Purse K. Camb. J. Econ. 2004; 28(4): 597-617.

Copyright

(Copyright © 2004, Cambridge Political Economy Society, Publisher Oxford University Press)

DOI

10.1093/cje/beh024

PMID

unavailable

Abstract

Neoclassical theory claims that wage differentials are paid to compensate workers for the risks of work-related injury and death. Empirical support for the claim is based on findings from econometric studies over three decades. This paper reviews the neoclassical case for compensating wage differentials. The focus is on studies which examine the theory as it applies to the risk of traumatic work-related death, since this is where the evidence for the theory is thought to be strongest. Much of the empirical support is found to be flawed. This is due to data limitations, difficulties in constructing the risk variable and, more particularly, problems with omitted variables which result in risk premia being conflated with inter-industry wage differentials. It is concluded that the neoclassical theory underpinning the econometric literature is also deficient and inhibits a realistic understanding of the production and distribution of work-related health and safety risks.