The Valuation of Risks in the Labor Market: Hedonic Wage Study in CR

This study investigates the relationship between wages and risks of work-related fatalities in the Czech labour market. To prove this relationship, we followed the theory of compensating wage differentials and the theory of hedonic prices. Using data from 2007 Czech labour survey, we econometrically derived three hedonic wage functions. To estimate mortality risks premiums, two of hedonic wage functions used objective measures of fatality risk, one subjectively perceived risk. We found a positive and statistically significant correlation between wages and occupational fatality risks in all three models. The estimated effect was lower for hedonic function with worker´s perception of mortality risks. This result implies the workers themselves underestimate the fatality risks that they are exposed. Based on estimated hedonic wage functions, we computed the value of a statistical life (VSL) which indicates the marginal rate of substitution between compensation and mortality risk. The implied value of VSL is 60 million CZK for the model with subjectively perceived risks and 266 million CZK for the models with objective risks in 2009 Czech crowns.