WORKER INVESTMENTS IN SAFETY,WORKPLACE ACCIDENTS,AND COMPENSATING WAGE DIFFERENTIALS

The theory of compensating wage differentials (CWDs) assumes that firms supply and workers demand workplace safety, predicting a positive relationship between accident risk and wages. This article allows for safety provision by workers, which predicts a countervailing negative relationship between individual risk and wages: Firms pay higher wages for higher safety‐related productivity. Using National Longitudinal Survey of Youth panel data and data on fatal and nonfatal accidents, our precise CWDs imply a value of a statistical injury of $45.4 thousand and a value of a statistical life of $6.3 million. In line with our model, individual risk and wages are negatively correlated.