A Profit Function Approach to Wage–Risk Differentials

Donald Vitaliano

International Journal of the Economics of Business, 2019, vol. 26, issue 2, 217-231

Abstract: A variable profit function is used in a novel way to estimate wage–risk premiums in Ohio bituminous coal mining. Unlike the dominant hedonic method, the profit function does not assume equilibrium and allows inferences about the marginal opportunity cost of accidents to mining companies. The profit function risk premium, expressed as a value of a statistical life (VSL), is $12,000 (in 1915 prices), and is below published estimates covering this period. The hedonic method is also used and yields a very similar VSL, a robustness check. It is also shown that the use of piece rate–based wages of coal loaders (the main group of miners) yields more plausible hedonic estimates than the fixed daily wage of “inside” miners typically employed.

Date: 2019
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DOI: 10.1080/13571516.2018.1512187

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