Impact of working conditions and work-related accidents on wages

An innovative study on wages and working conditions carried out by the Centre for Applied Mathematics and Economics at the University of Lisbon evaluated the monetary compensation for those working in sectors with dangerous, risky and painful working conditions. The study revealed that a positive wage differential exists for workers who show an increased exposure to work-related risks.

Working conditions from an economic perspective

In general, working conditions in Portugal are relatively poorer than in other EU countries; this can be seen from the higher work-related accident rates. In fact, although the incidence of fatal work-related accidents decreased by about 25% during the period 1994–2004, the amount of fatal occupational accidents in Portugal is still three times the EU15 average.

A classic question in the theoretical and empirical debate within economic theories is to understand if the market forces are able to converge in order to improve working conditions. In this context, the theory of compensating wage differentials supports the idea that workers who are employed in sectors in which working conditions are dangerous, insalubrious, risky, painful or unhealthy should receive a monetary compensation for their efforts. Otherwise, workers would tend to leave those jobs in favour of more pleasant and safer employment. As an alternative, companies could make significant investments in order to improve working conditions, by offering, in this case, lower salaries. According to this view, workers with jobs that are characterised by high accident rates should earn more than workers whose jobs have similar characteristics but a lower incidence of occupational accidents.

Although, in general, a reasonable amount of research has been carried out on this topic, less evidence has been collected concerning the Portuguese case. However, the recent study on ‘Wages and working conditions in Portugal’ developed by the Centre for Applied Mathematics and Economics (Centro de Matemática Aplicada à Previsão e Decisão Económica, CEMAPRE), aims to overcome this knowledge gap – CEMAPRE is based at the Mathematics Department of the School of Economics and Management (Instituto Superior de Economia e Gestão, ISEG) at theTechnical University of Lisbon.

The study established an econometric model to evaluate the existence of a wage differential compensating workers who are exposed to work-related risks at the workplace. As part of the research, personnel records were used combined with employment data from Statistics Portugal (Instituto Nacional de Estatística, INE) and work-related accidents data from the Statistics Department of the Ministry for Labour and Social Solidarity (Ministério do Trabalho e da Solidariedade Social, MTSS) – all data was from 2003. According to the researchers involved, these data allowed for the use of very reliable estimates in the research.

Wage differences

The study confirmed the significant gender wage gap in favour of men: the earnings of male workers were 20%–25% higher than the earnings of their female counterparts. On the other hand, the educational level had an important impact on the workers’ salaries. In 2003, workers holding a third-level or university degree earned over three times more than workers with a basic education obtained after four years of schooling – this finding represents a significantly higher gap than in most developed countries. The estimation of the econometric model also highlighted that, in Portugal, education has increasing returns; in other words, the higher the educational level attained, the larger the growth in earnings. Finally, the study found that large companies employing over 250 workers pay higher wages than smaller companies.

Compensatory wage differentials

In relation to the main focus of the study, the compensatory wage differentials, two main findings related to the risk variable should be underlined. First, in terms of extreme dangerousness, a positive wage differential exists compensating the workers exposed to fatal risks at the workplace. This positive relationship maintains whether the estimation is based on accident incidence rates by sector, by occupation or by sector and occupation.

The variable of non-fatal occupational accidents seems to be less important for wage determination. On the contrary, a negative relationship is more prominent. However, if the analysis focuses only on the group of plant and machine operators and assembly workers, which is considered as one group of workers who are most commonly exposed to work-related accident risks, both fatal and non-fatal risks have a positive effect and relevant impact on the amount of the average monthly earnings.

The study’s authors underline the danger associated with the fact that when the costs of these compensatory wage differentials are lower than the investment in more and better working conditions, companies tend to opt for the former case. Moreover, the authors conclude that an incentive exists to maintain harmful working conditions, particularly when workers who receive a ‘wage compensation’ do not complain about their working conditions. Encouraging companies to improve working conditions is therefore highly important.

Reference

Dias, J. (coord.), Cerdeira, M.C. and Kóvacs, I., Salários e Condições de trabalho em Portugal [Wages and working conditions in Portugal], Lisbon, Cadernos de Emprego e Relações de Trabalho, Ministry of Labour and Social Solidarity, 2007.

Jorge Cabrita, CESIS – Centro de Estudos para a Intervenção Social

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