Susana Ferreira

Measuring job risks when hedonic wage models do not do the job 

Abstract 

Hedonic wage regressions show little evidence that European workers are compensated for job risks and other workplace disamenities through higher wages. On the other hand, workers in more risky or unpleasant jobs are less satisfied with their jobs, ceteris paribus. If labor markets were perfectly competitive and workers fully informed of their working conditions ex ante, according to the theory of compensating differentials, there should be no relationship between on-the-job risk and job satisfaction because wages would fully adjust to compensate for differences in job disamenities. Our findings are thus consistent with the fact that in the presence of search costs and other labor market imperfections, hedonic wage regressions will yield biased estimates of the willingness to pay to reduce on-the-job risks. We explore the potential of job satisfaction regressions that estimate the tradeoff between wages and risks that keep job satisfaction constant as an alternative approach.