In this paper, we develop a theoretical model of worker investment in safety. Standard theory assumes that
the risk of workplace accidents is exogenous to workers. It predicts that riskier jobs are associated with higher wages. In contrast, in our model workers make individual safety investments that reduce the risk of accidents. This results in a negative association between individual risk and wages. We test the model's predictions using obesity as a proxy for worker disinvestments in human capital and safety. In line with our model predictions, we find a significant positive compensating wage differential(CWD) for nonfatal risk at the occupational level. At the same time, however, there exists an underlying significant negative association between individual accident risk and wages, but only in high risk occupations. The latter
relationship may downward bias or mask previous CWD estimates. |
