The Estimation of Compensating Wage Differentials: Lessons From the <i>Deadliest Catch</i>

Abstract

I use longitudinal survey data from commercial fishing deckhands in the Alaskan Bering Sea to provide new insights on empirical methods commonly used to estimate compensating wage differentials and the value of statistical life (VSL). The unique setting exploits intertemporal variation in fatality rates and wages within worker-vessel pairs caused by a combination of weather patterns and policy changes, allowing identification of parameters and biases that it has only been possible to speculate about in more general settings. I show that estimation strategies common in the literature produce biased estimates in this setting, and decompose the bias components due to latent worker, establishment, and job-match heterogeneity. The estimates also remove the confounding effects of endogenous job mobility and dynamic labor market search, narrowing a conceptual gap between search-based hedonic wage theory and its empirical applications. I find that workers’ marginal aversion to fatal risk falls as risk levels rise, which suggests complementarities in the benefits of public safety policies. Supplementary materials for this article are available online.