Compensation for Occupational Risk and Valuation of Statistical Life

This paper uses information on a sample of 430 blue collar workers from different manufacturing industries of Ahmedabad, India to examine the influence of worker’s compensation on their wage and mortality rates. This relation has a direct impact on the value of statistical life (VSL) estimates which is used to evaluate various health and safety policies. The compensation benefit plays a significant role in worker’s compensation package however it has not received much attention in previous Indian studies. Inclusion of the compensation variable not only raises the co-efficient of risk variables but also increases the value of statistical life and value of statistical injury (VSI) estimates. The result of this study indicates that trade-off between worker’s wage and compensation benefit exists for the workers in the sample. The estimated VSL that captures the effect of compensation benefit ranges between INR 30.27 million ($0.46 million) and INR 72.11 million ($1.10 million) while the estimated VSI ranges between INR 1.94 million ($0.029 million) and INR 2.82 million ($0.043 million). Besides, this paper goes further to study the rate of substitution between worker’s compensation benefit and their wage and finds that the benefit levels are sub-optimal.