Monday 26 September 2011

Inframarginal and Extramarginal Workers

Ike Brannon says in "What is a Life Worth?" Regulation, Vol. 27, No. 4, pp. 60-63, Winter 2004:
If I make $40,000 and my twin brother makes $42,000 at a job that is identical to mine in all respects except for a 1 percent greater chance of death, then an economist assumes that the $2,000 difference is a premium my twin brother requires to accept the riskier job. If he requires $2,000 for a 1 percent greater risk, then I can infer that he is placing a value on his life of $2,000 x (1 ÷ 0.01), or $200,000. There are problems with this approach. University of Wyoming professors Jason Shogren and Tommy Stamland argue that nearly all revealed preference studies are biased upwards to some degree. They observe that the wage at a particular job is just enough to entice the marginal worker. The other workers require less some limit money to accept the risk.

On the other hand, a downward bias is that there are lots of people who did NOT take the job because they require even more money to accept that risk.

8 comments:

  1. I woudl tend to agree with this, the riskier a job, the more you would have to pay someone at a marginal rate, however there are riskier jobs that require a high degree of specialization and skill. I skilled fisherman deserves more than the novice while both jobs are dangerous

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  2. The higher amount of risk in the job for the same pay would result in nobody wanting the job. The money acts as an incentive or a “risk compensation” of sorts so people consider the position with its risks and extra monetary benefits.

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  3. I thought the article raised another interesting point about defining some of the many variables in this equation.

    “Also, do we use the actual death rates or the workers’ perceived chances of death? After all, wage premiums are presumably based on perceived risk, not actual risk, and the two can diverge.”

    I hadn’t really thought about how complex this issue is until now that we’re covering it in class, but it just seems like there are some many still unanswered questions that we need to define before we can move on to any calculations. I think that, in the case of death rates, it might be best to use perceived in additional to actual risk. I would personally feel better knowing that people who were fortunate enough to avoid a catastrophe are still taken into consideration here, because it could mean a more accurate representation of just how risky the job in question can be. I understand some people might take advantage of the system and “perceive” more than they should, but I think it is better that workers will also get more safety precautions or higher rewards for taking on that risk. These jobs need to get done, but not at the expense of some.

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  4. I agree that the wages of particular perilous jobs are enough to entice the marginal worker, but I think that many workers are still undervalued even when they pursue these positions. Often, these individuals are so desperate in their pursuit of unemployment that they end up settling for a compensation that doesn't entirely correlate to the level of risk they areassuming.

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  5. I doubt if the risk of death will suffice here as an estimation of the value of life. Living is not only about surviving. It also includes health, both physical and mental. So maybe we could add other dimensions like probability of causality and jeopardizing one's health to make it a more complete theory, maybe.

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  6. Anna's point that maybe workers don't realize how dangerous a job is will come up in Chapter 9, on Information. The problem can run the other way too: workers may overestimate the danger of a job.

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  7. Maybe the brother making more money has better negotiating skills. It doesn't seem like they are making enough money to be considered working in a job that is dangerous.

    Although I do believe that if the job is more risky then you deserve a higher compensation for those risks. Someone has to do these risky jobs and the people willing to take on that task deserves to make some more money in case of accidents.

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  8. On the whole it appears to me that riskier jobs do not reward nearly as well as higher education does. In this sense I feel like human life isn't as valuable as it should be. There are many professions that have virtually no risk and pay five to ten times higher than professions such as mining and fishing.

    I think that the discrepancy between these jobs is caused by the units of workers on the lower end of the supply curve who are willing to risk their lives for less money. Once the positions are all filled there is no need to accept the workers who want more money to take the higher risk. If everybody in that job market lowered their willingness to accept risk and wanted more money then the wage discrepancy would be minimized.

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