COMPENSATING
WAGE
DIFFERENTIALS
1
Hewi-Lin Chuang, Ph.D.
2010/04/22
台灣十大危險工作排名大調查
 向「錢」看讓相當高比例上班族願意考慮從
事高危險工作的重要因素，但是工作危險卻
不一定代表相對得到更多的保障，某些高危
險性的工作職務會被保險公司列入「拒保」
戶。
 調查對象﹕ 台灣上班族
 調查時間： 2004年10月28日至2004年11月12日
 有效樣本﹕ 1,300份
 調查執行： 1111人力銀行
台灣十大危險工作排名
排名
危險工作
1
電力高壓工程施工人員
2
化學原料業（硫酸、硝酸、鹽酸）製造工作
3
大樓洗窗清潔工
4
採砂石業爆破工人
5
消防人員
6
油罐車／瓦斯載運工
7
警察
8
特技演員
9
醫療廢棄物處理人員
10
礦工
願意從事危險性工作原因

高達52.77%受訪上班族認為，當經濟壓力大時會從
事高危險性工作，顯見「高風險、高報酬」是上班族
願意「用生命搏金錢」的主因。

有42.38%的上班族「明知山有虎，偏向虎山行」是
因為薪水較高。

有39.92%的上班族選擇原因是認為可以「短期賺大
錢」。

也有超過三成受訪上班族在找不到工作時，會以選擇
高危險性工作來「度小月」 。

有24.23%受訪上班族在可以「增加人生歷鍊」的情
況下，會選擇從事高危險性工作。
高危險 低保障

在十大危險工作排名中，高壓電外線架設及修復人員
、特技演員、礦工等工作都屬於保險公司的拒絕往來
戶。

1111人力銀行調查發現，超過5成受訪上班族並不知道
某些高危險性的工作職務會被保險公司列入「拒保」
；危險工作被「拒保」 ，有 81%上班族認為「不合理
」。

根據1111人力銀行分析﹕因特殊職務類別造成被保險
人的死亡或受傷機率高於整體平均值，保險公司的理
賠金額自然也居高不下，保險業者也會針對各類職務
屬性訂出調高保費，甚至「拒保」的規定 。

解決方案﹕透過工會團體，以集合的力量向保險公司
洽談有關保費的問題。
資料來源﹕http://project.1111.com.tw/zone/pr/headline.asp?autono=772
COMPENSATING WAGE DIFFERENTIALS
 The
model of competitive labor markets implies
that as long as workers or firms can freely enter
and exit the marketplace, there will be a single
wage in the economy if all jobs are alike and all
workers are alike.
6
INTRODUCTION
 The
labor market is not characterized by a single wage:
workers differ and jobs differ.
 Adam
Smith proposed the idea that job characteristics
influence labor market equilibrium.
 Compensating
wage differentials arise to compensate
workers for nonwage characteristics of the job.
 Workers
have different preferences and firms offer
different working conditions.
7
 All
jobs are not the same. Adam Smith in 1776
argued that compensating wage differentials arise to
compensate workers for the nonwage characteristics
of jobs. It is not the wage that is equated across jobs
in a competitive market, but the “whole of the
advantages and disadvantages” of the job.
 Workers
differ in their preferences for job
characteristics and firms differ in the working
conditions that they offer. The theory of
compensating differentials tells a story of how
workers and firms “match and mate” in the labor
market.
8
各行業受雇員工每人每月平均薪資
行業別
93年
94年
95年
96年
97年
年增率(％)
總計
42,685
43,163
43,493
44,414
44,424
0.02
工業部門
40,841
41,908
42,507
43,302
43,233
-0.16
礦業及土石採取業
46,307
47,671
53,344
51,057
51,499
0.87
製造業
40,657
41,858
42,393
43,169
43,105
-0.15
電力及燃氣供應業
94,525
91,184
97,230
98,448
89,296
-9.30
用水供應及污染整治業
42,880
47,647
47,251
44,447
44,649
0.45
營造業
37,916
38,450
39,168
40,327
40,792
1.15
44,396
44,290
44,359
45,380
45,450
0.15
39,819
46,986
24,813
59,417
66,671
39,781
49,311
32,707
55,341
29,662
29,421
39,545
48,618
25,121
61,381
65,113
38,819
50,890
32,815
55,603
29,898
30,384
39,380
48,460
24,960
61,134
69,054
38,313
51,740
32,622
55,429
31,303
30,203
39,475
49,234
25,500
63,756
75,732
37,877
53,281
33,139
56,603
31,499
29,926
39,980
49,800
26,747
63,888
71,319
40,343
54,524
32,999
58,122
32,053
29,311
1.28
1.15
4.89
0.21
-5.83
6.51
2.33
-0.42
2.68
1.76 9
-2.06
服務業部門
批發及零售業
運輸及倉儲業
住宿及餐飲業
資訊及通訊傳播業
金融及保險業
不動產業
專業、科學及技術服務業
支援服務業
醫療保健服務業
藝術、娛樂及休閒服務業
其他服務業
資料來源:行政院主計處受雇員工薪資調查與生產力統計-年報(97年)
1. WORKERS’ AND FIRMS’ CHOICE WITH RISKY JOBS
E.g. Employer X: NT.$100 per hour, clean, safe work conditions
Employer Y: NT.$100 per hour, dirty, noisy factory
→ Most workers would undoubtedly choose employer X.
If employer Y decides not to alter working conditions, it must
pay wage above NT.$100 to be competitive in the labor market.
→ The extra wage it must pay to attract workers is called a
compensating wage differential because the higher wage is
paid to compensate workers for the undesirable working
conditions.
After the wage rise of firm Y, if both firms could obtain the
quantity and quality of works they wanted, the wage
10
differential would be an equilibrium differential, in the sense
that there be no forces causing the differential to change.
* THE COMPENSATING WAGE
DIFFERENTIAL SERVES TWO PURPOSES:
1.
It serves a social need by giving people an
incentive to voluntarily do dirty, dangerous, or
unpleasant work or a financial penalty on
employers offering unfavorable working
conditions.
2.
At an individual level, it serves as a reward to
workers who accept unpleasant jobs by paying
them more than comparable workers in more
pleasant jobs. Those who opt for more
pleasant conditions have to buy them by
accepting lower pay.
11
→ Compensating wage differentials provide the key
to the valuation of the nonpecuniary aspects of
employment.
Note:
The predicted outcome of the compensating wage
differential theory of job choice is not that employees
working under “bad” conditions receive more than
those working in “good” conditions. The prediction is
that, holding worker characteristics constant,
employees in bad jobs receive higher wages than
those working under more pleasant conditions.
12
* THE COMPENSATING WAGE DIFFERENTIAL
THEORY IS BASED ON THREE ASSUMPTIONS:
1.
Utility Maximization
Workers seek to maximize their utility, not their
income. Compensating wage differentials will only
arise if some people do not choose the highestpaying job offered, preferring instead a lowerpaying but more pleasant job.
→ Wages do not equalize in this case. The net
advantage – the overall utility from the pay and the
psychic aspects of the job – tend to equalize for the
marginal workers.
13
Worker Information
Workers are aware of the job characteristics of
potential importance to them.
→ Company offering a “bad” job with no compensating
wage differential would have trouble recruiting or
retaining workers, trouble that would eventually force
it to raise its wage.
2.
Note: Our predictions about compensating wage
differentials hold only for job characteristics that
workers know about.
3.
Workers Mobility
Workers have a range of job offers from which to
choose. It is the act of choosing safe jobs over
dangerous ones that forces employers offering
dangerous work to raise wages.
14
2. THE HEDONIC WAGE FUNCTION
A wage theory based on the assumption of
philosophical hedonism that workers strive to
maximize utility.
To simplify our discussion, we shall analyze just
one dimension –risk of injury on the job – and
assume that the compensating wage differentials for
every other dimension have already been
established.
→ To obtain a complete understanding of the job
selection process and the outcomes of that process,
it is necessary to consider both the employer and
employee sides of the market.
15
(1) EMPLOYEE CONSIDERATIONS
Some combinations of wage rates and risk levels that
would yield the same level of utility can be represented by
indifference curve map.
W
U3
U2
U1
U2 slopes upward because
risk of injury is a “bad” job
characteristics. i.e., if risk
increases, wage must rise if
utility is to be held constant.
16
Risk
INDIFFERENCE CURVES FOR THREE
TYPES OF WORKERS
Wage
UA
UB
UC
Probability of
Injury
Different workers
have different
preferences for risk.
Worker A is very
risk-averse. Worker
C does not mind risk
very much at all.
Worker B is between
the two.
17
(2) EMPLOYER CONSIDERATIONS
Assumptions:
It is presumably costly to reduce the risk of injury
facing employees.
a.
b.
c.
Perfect competition → Firms operate at zero profits.
All other job characteristics are presumably given
or already determined.
→ If a firm undertakes a program to reduce the risk of
injury, it must reduce wages to remain competitive.
18
Forces on the employer side of the market tent to
cause low risk to be associated with low wages and
high risk to be associated with high wages, holding
other things constant.
→The employer trade-offs between wages and levels
of injury risk can be graphed through the use of
isoprofit curves , which show the various
combinations of risk and wage level that yield a
given level of profits.
19
ISOPROFIT CURVES
Wage
P
p0
Q
p1
R
r*
Probability of
Injury
An isoprofit curve gives all
the risk-wage combinations
that yield the same profits.
Because it is costly to produce
safety, a firm offering risk
level ρ* can make the
workplace safer only if it
reduces wages (while keeping
profits constant), so that the
isoprofit curve is upward
sloping. Note: higher isoprofit
curves yield lower profits.
20
W
The concavity of isoprofit
curves is a representation of
our assumption that there are
diminishing marginal returns
to safety expenditures.
M
N
→ The cost of reducing risk
levels is reflected in the slope
of the isoprofit curve.
Risk
21
Y’
W
X’
Employers differ in
the ease (cost) with
which they can
eliminate hazards.
→ Firm X can reduce
risk more cheaply than
firm Y.
X
Y
Risk
22
(3) THE MATCHING OF EMPLOYER AND
EMPLOYEES
Graphing worker indifference curves and employer
isoprofit curves together can show which workers choose
which offers.
B2
Y’
W
B1
WBY
A’s choice: (WAX, RAX)
→ value safety higher
X’
If A took B’s offer
WAX
→ A1 < A2
A2
B’s choice: (WBY, RBY)
Y
X
A1
RAX
23
RBY
Risk
 Since
X can produce safety more cheaply than Y, X
will be a low-risk producer who attracts employees,
like A, who value safety highly. Y attracts people like
B, who have a relatively strong preference for money
wages and a relatively weak preference for safety.
Note:
The only offers of jobs to workers with a chance of
being accepted lie along XR’Y’.
→
The curve XR’Y’ can be called an “offer curve”,
because only along XR’Y’ will offers employers can
afford to make be potentially acceptable to
employees.
24
W
Offer Curve
Risk
The more types of firms there
are in a market, the smoother
this offer curve will be. It will
always slope upward because
of our assumptions that risk is
costly to reduce and that
employees must be paid
higher wages to keep their
utility constant if risk is
increased.
25
HEDONIC WAGE THEORY
 Workers
maximize utility by choosing wage-risk
combinations that offer them the greatest amount of
utility.
 Isoprofit
curves are upward sloping because
production of safety is costly.
 Isoprofit
curves are concave because production of
safety is subject to the law of diminishing returns.
 Hedonic
wage functions reflect the relationship
between wages and job characteristics.
26
THE HEDONIC WAGE FUNCTION
Wage
UC
UB
UA
PA
PB
PC
Hedonic
Wage
Function
pZ
pY
pX
Probability of
Injury
Different firms have different
isoprofit curves and different
workers have different
indifference curves. The labor
market marries workers who
dislike risk (such as worker A)
with firms that find it easy to
provide a safe environment
(like firm X); and workers who
do not mind risk very much
(worker C) with firms that find
it difficult to provide a safe
environment (firm Z). The
observed relationship between
wages and job characteristics is
called a hedonic wage function.27
* MAJOR INSIGHTS:
1.
Wages rise with risk, other things equal.
→ There will be compensating wage differentials for
job characteristics that are viewed as undesirable by
workers.
2.
Workers with strong preferences for safety will tend
to take jobs in firms where safety can be generated
most cheaply.
→ Firms and workers offer and accept jobs in a fashion
that makes the most of their strengths and
preferences.
28
3. POLICY APPLICATION: HOW MUCH IS A LIFE
WORTH?
 Studies
report a positive relationship between wages
and work hazards.
 The
statistical value of life is the amount that workers
are jointly willing to pay to reduce the likelihood that
one of them will suffer a fatal injury in a given year
on the job.
 The
empirical evidence is ambiguous on the estimates
of the value of a life.
29
1.
Empirical Evidences
• Many studies estimate the hedonic function relating
wages and the probability of injury on the job. This
literature typically estimates regressions of the form:
wi = γρi + other variables
Where wi gives the wage of worker i and ρi. gives the
probability of injury on the worker’s job. The
coefficientγgives the wage change associated with a
one-unit increase in the probability of injury.
•
Many empirical studies report a positive relationship
between wages and hazardous or unsafe work
conditions, regardless of how the hazard or the unsafe30
nature of the work environment is defined.
2. Calculating the Value of Life
The correlations of the wages and the probability of
injury on the job allow us to calculate the “value of
life.”
Example:
Firm
Probability of Fatal Injury
Annual Earnings
X
ρx
wx
Y
ρx + .001
wx+ $5,000
31
 The
data suggests that each of the workers in firm Y is
willing to give up $5,000 per year to reduce the
probability of fatal injury in their job by 0.001 units.
Put differently, the 1,000 workers employed in firm Y
are willing to give up $5 million (or $5,000x 1,000
workers) to save the life of the one worker who will
almost surely die in any given year. The workers in
firm Y, therefore, value a life at $5 million.

This calculation instead gives the amount that
workers are jointly willing to pay to reduce the
likelihood that one of them will suffer a fatal injury in
any given year. It is the statistical value of a life.
32