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Do low qualified workers underestimate the value of life? First appraisal for Portugal

Portugal is intensively seeking for FDI, some announcements were made either by AICEP (Portuguese Agency for Investment and External Commerce) or the Ministry of the Economy and Employment. For example, two of them are related with natural resources extraction: copper and zinc mining (Neves Corvo ores – investment by Lundin Mining) and gas (joint venture between Mohave and Galp Energia). Why are resources’extractions important for a health economist? Well, these activities have higher accident probability for workers and so they tend to be riskier. If there is a larger risk of fatal accidents (i.e. dying) and yet there are people willing to work on them this means we have a measure or proxy for life’s value. Indeed, in Portugal for 2008, there are more 62 fatal accidents in mining and quarrying per 100,000 workers relatively to all other economic activities. Putting this into probability terms, the risk premium is expected to be 0,062% higher for mining and quarrying compared to other sectors. Notice the equivalence in the interpretations. On the latter number we say that we expect 0,062 more deaths in the mining than on the rest of the economy per 100 workers, whereas on the former we expect 62 more deaths per 100,000 workers, on average, for 2008 Eurostat data.

That was the dark side, the cost-side. What about the bright side or the benefits side? If the activities are riskier we expect to have higher wages compared to the national average for all other sectors. This wage setting is agreed between firms, unions and the government and thus we can assume that there is an overall consensus around the value established. According to ILO data, wage for mining and quarrying in Portugal for 2008 was 880€, against the national average of 840€. Most miners have low level of education (years of schooling equal to 4) and average population has 8 years of schooling, and an additional year of education increases wages by 9,7% on average for Portugal, Pereira and Martins (2001). If this is so, corrected by education, miners’ salaries should be 582,5€ rather than 880€. Thus the wage spread, this is, the difference between the actual wage of mining and quarrying workers and their expected wage given their levels of education is 297,4€.

From an average Portuguese individual point of view it is only worth to accept the job if the benefit overcomes the cost such that:

 

Remember the risk premium in paragraph one is measure per 100 workers. At the individual level he wants to know his own share of higher likelihood of death. The wage spread comes multiplied by 14 to get a yearly measure (12 months plus the 2 subsidies Portuguese workers received by law. Each subsidy is equal to a monthly wage.). VSL stands for Value of a Statistical Life and it’s defined as the value society gives to life of a random person in an economy. One of the approaches to calculate VSL is simply this risk premium approach. Measuring how much one is willing to accept/receive in income for exchange of higher probability of death.

 

Comparing this value here with other estimations for VSL throughout the world, we see that this number is within the boundaries (Miller, 2000). In that study values range from 600,000€ to 7,5 million €. Surprisingly (or not) Moore and Viscusi (1990) also present a value of 6,1 million € at 2008 prices.

This article describes one more piece of evidence of how much society values life unconsciously – rule of thumb is from 5 to 12 million €. In this case the Portuguese society and its mining sector were analyzed. The final value seems to be consistent with previous works for other countries.

This topic is especial relevant if we take into account the international context of South Africa and Spain’s strikes for more rights on the mining sector, in short the discussion is mostly around compensations and wages.

 

Informative Table

Variable

Value

Sources:

Risk Premium

0,062% (per 100 workers)

Eurostat

Wage spread

297,4 €

ILO

VSL

6.717.351 €

Author’s calculations

 

References:

Pordata; Eurostat; ILO Database;

Prós e Contras, 16th of July 2012-09-13

Jornal Público;

Jornal Negócios;

Pereira, P. and Martins, P. (2001), Returns to Education and Wage Equations, IZA DP no. 298, Institute for the Study of Labor, Bonn;

Miller, Ted (2000), Variations between Countries in Value for Statistical Life, Journal of Transport Economics and Policy, Volume 34-part 2, pp 169-188

Moore, Michael and Viscusi, W. Compensation Mechanisms for Job Risks, Princeton: Princeton University Press, 1990.

 

 

Gustavo Almeida

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Author: studentnovasbe

Master student in Nova Sbe

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