Academic journal article Journal of Economics and Finance

Unemployment and Compensating Wages: An Analysis of Shift Work

Academic journal article Journal of Economics and Finance

Unemployment and Compensating Wages: An Analysis of Shift Work

Article excerpt


Compensating wages have been documented for a number of job attributes including working non-standard hours. Using data that aggregates across occupations, our analysis confirms a wage premium for working night shifts. However, the compensating wage is greater in areas where unemployment is low, suggesting that employers are less pressured to compensate for night shifts when employment opportunities are relatively scarce. If this result holds for other undesirable work characteristics, such as risk of death on the job, then weak labor markets will have lower compensating wages in general.

Keywords Shift Work * Compensating Wages

JEL codes J31

1 Introduction

Labor market theory suggests workers may require a wage premium to accept jobs with unpleasant characteristics. The theory of compensating wages has been tested with respect to a number of job attributes, the results of which have been mixed. There is a significant amount of evidence in support of compensating wages based on risk of injury or death on the job. For some examples, see Viscusi and Aldy (2003), Black and Kniesner (2003), and, for gender specific risk, Hersch (1998). Additionally, compensating wages have been found for other negative job attributes such as stress [French and Dunlap (1998)], noisy work environment [Daniel and Sofer (1998)], and risk of job loss [Moretti (2000) and Magnani (2002)].

As pointed out in Rosen (1986), the theory of compensating wages rests on the assumption that the number of individuals who are indifferent to a particular job characteristic must not be large enough to negate the need for a wage premium. All else constant, employers in regions where unemployment is relatively high should be able to choose from a larger labor pool, potentially reducing the need to offer a compensating wage. There is evidence that employers are more selective during periods of high unemployment. For instance, Kandil and Woods (2002) find that the earnings of women relative to men improve during times when unemployment is low. Boushey (2002) provides similar results for black workers, and Hotchkiss and Pitts (2007) find the labor market intermittency penalty rises during times of labor market weakness. These studies refer to worker characteristics that businesses may find relatively less appealing, where compensating wages arise for job characteristics that workers find undesirable. As unemployment increases, however, there would be fewer opportunities to choose from, and thus workers would presumably be less picky.

The goal of this study is to investigate the role that unemployment plays in determining compensating wages. Although previous research typically adjusts for region and occupation, no study specifically tests the impact the local unemployment rate has on compensating wages. This is of potential importance, however, as high unemployment regions may differ significantly in the relative magnitude of compensating wages. If so, workers in weak labor markets would find it more difficult to supplement their pay by accepting otherwise undesirable jobs. With respect to wage premiums for night shifts, we indeed find that local labor market conditions matter. Specifically, as unemployment increases, the wage advantage of working a night shift declines.

2 Evidence on shift-based wage premiums

We choose to apply our tiieory to compensating wages for shift work, as several studies have confirmed the existence of shift-based wage premiums. Kostiuk (1990) finds a shift premium for male manufacturing workers in the U.S. of approximately 8%, with union workers receiving a greater shift premium tiian non-union workers. Using data for male Swedish Workers, Anargson (1998) finds a 5% wage advantage for shift workers. Additionally, using data for French blue-collar workers, Lanfranchi et al. (2002) find a shift-based compensating wage of 16%.

The studies referenced above refer to premiums associated with working any nonstandard shift. …

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