Differences between Risk Premiums in Union and Nonunion Wages and the Case for Occupational Safety Regulation
Abstract
There is an interesting unexplored sideline to the empirical literature on compensating wage differentials (CDs) for hazardous work. Every study of differences between union and nonunion compensation for exposure to deadly hazards has found that union members receive much larger CDs than nonunion workers.' Further, in many of these studies negative CDs are found and some are statistically significantly negative. Some have interpreted these results as indicating the possible existence of substantial market failure. Despite this, there has been almost no discussion of the implications of such a conclusion for occupational safety and health policy. In contrast, several authors, ignoring the union-nonunion differences, have suggested that the empirical evidence on risk premiums supports the argument that markets efficiently allocate occupational risk without government intervention. (See, for example, Robert Smith, 1982, pp. 327, 336.) The analysis presented below shows that a market failure argument is not needed to explain the finding that union workers receive larger CDs than nonunion workers. Efficient contracts may provide workers with either larger or smaller CDs than a competitive market would. But, negative CDs cannot be reconciled with efficient markets given any reasonable assumptions about workers' preferences. The analysis also considers several potential statistical explanations for these findings. Results are mixed and the conclusion considers the policy implications.
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