Compensating Wage Differentials for Job Stress

In 2014, 28% of Americans were completely or somewhat dissatisfied with their level of on- the-job stress (Gallup, 2014). A large medical literature shows that job stress is associated with higher rates of cardiovascular disease, workplace injury, musculoskeletal disorders, and suicide. A growing literature shows that job stress affects productivity measures such as absenteeism, tardiness, and the intention to quit. However, stress is just one component of an occupation, and workers with heterogeneous preferences may rationally sort into jobs based on combinations of other job characteristics including wages, hours, and health insurance. In this paper, we evaluate the extent to which young workers are willing to tradeoff mentally stressful job characteristics for higher wages. If young workers receive compensating differentials for stressful job characteristics, then the observed correlation between job stress and health and productivity outcomes is in part driven by selection into occupation. To investigate, we merge longitudinal data from the National Longitudinal Survey of Youth, 1997 cohort, to rich job characteristic data from the Occupational information Network (ONET). Using factor analysis, the ONET data allow us to characterize an individual’s job on several stress dimensions. We intend to use within individual variation in wages and job stressors from individuals who change occupations to identify the existence and magnitude of compensating wage differentials. Our work contributes to the literature on compensating differentials in two important ways. First, focusing on young adult workers is especially important because a.) they are very mobile – a precondition for the existence of compensating wage differentials – and b.) they are perhaps willing to test different career paths to learn about their own preferences along the wage/stress dimension. Second, to our knowledge, only one paper, French (Applied Economics, 1998) studies the existence of compensating wage differentials with respect to job stress and mental health. That paper focuses on a specific industry using historical data. Therefore, our paper is the first to use nationally representative, longitudinal data and focus on within individual job transitions.