Ruhr Economic Papers

Ruhr Economic Papers #14

Using Job Changes to Evaluate the Bias of the Value of a Statistical Life

by Sandra Schaffner and Hannes Spengler

RWI, 06/2007, 38 S./p., 8 Euro, ISBN 978-3-86788-008-4



This paper presents a new approach to obtain unbiased estimates of the value of a statistical life (VSL) with labor market data. Investigating job changes, we combine the advantages of recent panel studies, which allow to control for unobserved heterogeneity of workers, and conventional cross-sectional estimations, which primarily exploit the variation of wage and risk between different jobs. We find a VSL of 6.1 million euros from pooled cross-sectional estimation, 1.9 million euros from the static first-differences panel model and 3.5 million euros from the jobchanger specification. Thus, ignoring individual heterogeneity causes overestimates of the VSL, whereas identifying the wagerisk tradeoff not only by means of between job variation (job changer model) but also on the basis of noisy variation on the job (panel models) may lead to underestimates of the VSL. Our results can be used to perform cost-benefit analyses of public projects aimed at reducing fatality risks, e.g., in the domains of health, environmental or traffic policy.

JEL-Classification: I10, J17, J28, K00

Keywords: Value of a statistical life (VSL); compensating wage differentials; work accidents; job changes