"Did we overestimate the value of health?"

Research Collection Working Paper "Did we overestimate the value of health?" Author(s): Lalive, Rafael Publication Date: 2000 Permanent Link: https://doi.org/10.3929/ethz-a-004373667 Rights / License: In Copyright - Non-Commercial Use Permitted This page was generated automatically upon download from the ETH Zurich Research Collection. For more information please consult the Terms of use. ETH Library

Institute for Empirical Research in Economics University of Zurich Working Paper Series ISSN 1424-0459 Working Paper No. 60 "Did we Overestimate the Value of Health?" Rafael Lalive October 2000

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Table 1. Comparing Austria to the United States United States Austria Incidence of injuries or illnesses a, 1986-1991 3.9 b 7.0 c Institutions Unions density 15.6 46.2 coordination 1 3 Outcomes Unemployment, 1983-1996 6.5 3.8 Emp. / Pop., 1994-1996 73.1 67.3 Labor Productivity, 1994 (US=100) GDP / Worker 100 87 GDP / Hour 100 100 Notes: Source Nickell and Layard (1999), US Dept of Labor, own calculations. a. (N/EH) x 200,000, where N is number of injuries and illnesses with days away from work, EH is total hours worked by all employees during the calendar year, and 200,000 is the base for 100 equivalent full-time workers. b. All incidences with at least one workday lost. c. All incidences with at least 4 weeks of workdays lost (see Section 3 for details).

Table 2. Occupational injury and illness risks, Firm vs Industry Mean Variance Risk measured at... Industry level 7.0 16.8 Firm level 7.0 59.3 Deviations from industry mean Number of industries Number of firms 0.0 42.5 22 261 Notes: Source: own calculations. Definition of Incidence: see notes to Table 1

Table 3. Compensation for Illness Risk A B C D Risk measured at Industry level Firm level Industry level Firm level Illness Risk 0.0136 ** 0.0064 ** 0.0119 ** 0.0019 ** (0.0040) (0.0005) (0.0018) (0.0003) Illness Sqared /1000-0.2594-0.0449 ** -0.3026 ** -0.0079 ** (0.1720) (0.0073) (0.0653) (0.0034) Illness * Tenure / 1000-0.0023 ** -0.4036 ** -0.001 ** -0.1823 ** (0.0002) (0.0403) (0.0002) (0.0248) Individual fixed effects No No Yes Yes Risk differential as % of mean wage a 8.28 4.28 6.81 1.28 US 4.92 - - - Log likelihood -14367.5-14038.5 Loss function 197.178 200.14 N 42432 42432 42432 42432 Note: Dependent variable: log(yearly compensation). Standard Errors in parentheses. *, ** indicate significance at the 10% (5%) level. Tobit estimator, Panels A and B, and Honoré (1992) fixed effect estimator, Panels C and D. Other controls are share male, share white collar, share 40 to 65 year old in industry/firm, firm size, age, tenure, time trend, male, industry fixed effects. a. (p*dw/dp)/w, where p is mean risk, dw/dp is the marginal effect at the mean, and w is mean wage. The US value is from Hersch (1998).

w EU 3 W EU 2 EU 1 F 3 F 2 W F 1 p Figure 1. Equilibrium with three firms and three workers. F1, F2, and F3 are isoprofit lines, EU1, EU2, and EU3 are indifference curves.

w 3 w 2 W w 3 w 2 W w 1 W w 1 W p1 p 2 p 3 p1 p 2 p 3 Figure 2a. Industry 1 low risk Figure 2b. Industry 1 high risk Concave hedonic wage function WW w 3 W w 3 W w 2 w 2 w 1 W w 1 W p1 p 2 p 3 p1 p 2 p 3 Figure 2c. Industry 1 low risk Figure 2d. Industry 1 high risk Convex hedonic wage function WW Note: Firm 1 and firm 3 belong to industry 1, firm 2 belongs to industry 2 (consisting of just this firm). The fat ray is the locus of industry 1 risk. The industry risk differential is the slope from a line starting on the fat ray, going through (w 2, p 2 )

Working Papers of the Institute for Empirical Research in Economics No. 1. Rudolf Winter-Ebmer and Josef Zweimüller: Firm Size Wage Differentials in Switzerland: Evidence from Job Changers, February 1999 2. Bruno S. Frey and Marcel Kucher: History as Reflected in Capital Markets: The Case of World War II, February 1999 3. Josef Falkinger, Ernst Fehr, Simon Gächter and Rudolf Winter-Ebmer: A Simple Mechanism for the Efficient Provision of Public Goods Experimental Evidence, February 1999 4. Ernst Fehr and Klaus M. Schmidt: A Theory of Fairness, Competition and Cooperation, April 1999 5. Markus Knell: Social Comparisons, Inequality, and Growth, April 1999 6. Armin Falk and Urs Fischbacher: A Theory of Reciprocity, April 1999 7. Bruno S. Frey and Lorenz Goette: Does Pay Motivate Volunteers?, May 1999 8. Rudolf Winter-Ebmer and Josef Zweimüller: Intra-firm Wage Dispersion and Firm Performance, May 1999 9. Josef Zweimüller: Schumpeterian Entrepreneurs Meet Engel s Law: The Impact of Inequality on Innovation- Driven Growth, May 1999 10. Ernst Fehr and Simon Gächter: Cooperation and Punishment in Public Goods Experiments, June 1999 11. Rudolf Winter-Ebmer and Josef Zweimüller: Do Immigrants Displace Young Native Workers: The Austrian Experience, June 1999 12. Ernst Fehr and Jean-Robert Tyran: Does Money Illusion Matter?, June 1999 13. Stefan Felder and Reto Schleiniger: Environmental Tax Reform: Efficiency and Political Feasibility, July 1999 14. Bruno S. Frey: Art Fakes What Fakes?, An Economic View, July 1999 15. Bruno S. Frey and Alois Stutzer: Happiness, Economy and Institutions, July 1999 16. Urs Fischbacher, Simon Gächter and Ernst Fehr: Are People Conditionally Cooperative? Evidence from a Public Goods Experiment, July 2000 17. Armin Falk, Ernst Fehr and Urs Fischbacher: On the Nature of Fair Behavior, August 1999 18. Vital Anderhub, Simon Gächter and Manfred Königstein: Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment, August 1999 19. Simon Gächter and Armin Falk: Reputation or Reciprocity?, September 1999 20. Ernst Fehr and Klaus M. Schmidt: Fairness, Incentives, and Contractual Choices, September 1999 21. Urs Fischbacher: z-tree - Experimenter s Manual, September 1999 22. Bruno S. Frey and Alois Stutzer: Maximising Happiness?, October 1999 23. Alois Stutzer: Demokratieindizes für die Kantone der Schweiz, October 1999 24. Bruno S. Frey: Was bewirkt die Volkswirtschaftslehre?, October 1999 25. Bruno S. Frey, Marcel Kucher and Alois Stutzer: Outcome, Process & Power in Direct Democracy, November 1999 26. Bruno S. Frey and Reto Jegen: Motivation Crowding Theory: A Survey of Empirical Evidence, November 1999 27. Margit Osterloh and Bruno S. Frey: Motivation, Knowledge Transfer, and Organizational Forms, November 1999 28. Bruno S. Frey and Marcel Kucher: Managerial Power and Compensation, December 1999 29. Reto Schleiniger: Ecological Tax Reform with Exemptions for the Export Sector in a two Sector two Factor Model, December 1999 30. Jens-Ulrich Peter and Klaus Reiner Schenk-Hoppé: Business Cycle Phenomena in Overlapping Generations Economies with Stochastic Production, December 1999 31. Josef Zweimüller: Inequality, Redistribution, and Economic Growth, January 2000 32. Marc Oliver Bettzüge and Thorsten Hens: Financial Innovation, Communication and the Theory of the Firm, January 2000 33. Klaus Reiner Schenk-Hoppé: Is there a Golden Rule for the Stochastic Solow Growth Model? January 2000 34. Ernst Fehr and Simon Gächter: Do Incentive Contracts Crowd out Voluntary Cooperation? February 2000 35. Marc Oliver Bettzüge and Thorsten Hens: An Evolutionary Approach to Financial Innovation, July 2000 36. Bruno S. Frey: Does Economics Have an Effect? Towards an Economics of Economics, February 2000 37. Josef Zweimüller and Rudolf Winter-Ebmer: Firm-Specific Training: Consequences for Job-Mobility, March 2000 The Working Papers of the Institute for Empirical Research in Economics can be downloaded in PDF-format from http://www.unizh.ch/iew/wp/ Institute for Empirical Research in Economics, Blümlisalpstr. 10, 8006 Zurich, Switzerland Phone: 0041 1 634 37 05 Fax: 0041 1 634 49 07 E-mail: bibiewzh@iew.unizh.ch

Working Papers of the Institute for Empirical Research in Economics No. 38. Martin Brown, Armin Falk and Ernst Fehr: Contract Inforcement and the Evolution of Longrun Relations, March 2000 39. Thorsten Hens, Jörg Laitenberger and Andreas Löffler: On Uniqueness of Equilibria in the CAPM, July 2000 40. Ernst Fehr and Simon Gächter: Fairness and Retaliation: The Economics of Reciprocity, March 2000 41. Rafael Lalive, Jan C. van Ours and Josef Zweimüller: The Impact of Active Labor Market Programs and Benefit Entitlement Rules on the Duration of Unemployment, March 2000 42. Reto Schleiniger: Consumption Taxes and International Competitiveness in a Keynesian World, April 2000 43. Ernst Fehr and Peter K. Zych: Intertemporal Choice under Habit Formation, May 2000 44. Ernst Fehr and Lorenz Goette: Robustness and Real Consequences of Nominal Wage Rigidity, May 2000 45. Ernst Fehr and Jean-Robert Tyran: Does Money Illusion Matter? REVISED VERSION, May 2000 46. Klaus Reiner Schenk-Hoppé: Sample-Path Stability of Non-Stationary Dynamic Economic Systems, Juni 2000 47. Bruno S. Frey: A Utopia? Government without Territorial Monopoly, June 2000 48. Bruno S. Frey: The Rise and Fall of Festivals, June 2000 49. Bruno S. Frey and Reto Jegen: Motivation Crowding Theory: A Survey of Empirical Evidence, REVISED VERSION, June 2000 50. Albrecht Ritschl and Ulrich Woitek: Did Monetary Forces Cause the Great Depression? A Bayesian VAR Analysis for the U.S. Economy, July 2000 51. Alois Stutzer and Rafael Lalive: The Role of Social Work Norms in Job Searching and Subjective Well-Being, July 2000 52. Iris Bohnet, Bruno S. Frey and Steffen Huck: More Order with Less Law: On Contract Enforcement, Trust, and Crowding, July 2000 53. Armin Falk and Markus Knell: Choosing the Joneses: On the Endogeneity of Reference Groups, July 2000 54. Klaus Reiner Schenk-Hoppé: Economic Growth and Business Cycles: A Critical Comment on Detrending Time Series, August 2000 55. Armin Falk, Ernst Fehr and Urs Fischbacher: Appropriating the Commons A Theoretical Explanation, September 2000 56. Bruno S. Frey and Reiner Eichenberger: A Proposal for a Flexible Europe, August 2000 57. Reiner Eichenberger and Bruno S. Frey: Europe s Eminent Economists: A Quantitative Analysis, September 2000 58. Bruno S. Frey: Why Economists Disregard Economic Methodology, September 2000 59. Armin Falk, Ernst Fehr, Urs Fischbacher: Informal Sanctions, September 2000 60. Rafael Lalive: Did we Overestimate the Value of Health?, October 2000 The Working Papers of the Institute for Empirical Research in Economics can be downloaded in PDF-format from http://www.unizh.ch/iew/wp/ Institute for Empirical Research in Economics, Blümlisalpstr. 10, 8006 Zürich, Switzerland Phone: 0041 1 634 37 05 Fax: 0041 1 634 49 07 E-mail: bibiewzh@iew.unizh.ch