Income Inequalities in Traffic Crash Victims : A Closer Look at Disability and Labor Market Dynamics

This study investigates the long term socio-economic impacts of traffic crashes at the individual level. In particular, this paper places its central interest in shaping a dynamic model that explains the structural sources of earnings loss of traffic crash victims. Existing literature argues that physical disability from a traffic crash leads to earnings losses in the long run. This paper proposes to move this argument further and assumes that disability itself is not entirely responsible for earnings loss. More important are labor market outcomes associated with disability including work hours reduction and job loss. Thus one expects to find the causal relationship between the labor market outcome after a traffic crash and earnings loss.By using the original data on traffic victims' post-crash socio-economic status changes collected from a survey questionnaire conducted in South Korea, this paper shows that while disability is positively related to a decrease of personal income after a traffic crash, it is not entirely responsible for the income reduction. When labor market related variables such as job loss and working hours decrease are added to the model, the effect of the disability disappears and labor market related variables appear to be statistically significant. This suggests that disability is a mediating factor for earnings loss but not the key causality.As such, traffic crashes are, by all means, a matter of public health and safety, but at a certain point, the problem takes a qualitative turn to issues of economic development, income inequality and welfare. Understanding the above-mentioned mechanism provides insights to identify what kind of policy intervention can help reduce potential income inequality generated by traffic crashes. While disability might poses a critical limitation to individuals, if they can still continue their employment, the income decrease will be much less severe. This suggests that through intervention in the labor market, the government can help reduce the income inequality that is artificially induced by traffic crashes