Research Article |
Corresponding author: Ekaterina A. Zubova ( catherine.fys13@yandex.ru ) © 2022 Ekaterina A. Zubova.
This is an open access article distributed under the terms of the Creative Commons Attribution License (CC BY 4.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
Citation:
Zubova EA (2022) Does the value of human life in Russia increase with age and higher levels of education? Population and Economics 6(1): 62-79. https://doi.org/10.3897/popecon.5.e79796
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Estimates of the value of life, reflecting society’s preferences regarding the choice between safety and money, are key indicators for state management in areas such as healthcare, transport, demographic policy, and environmental protection. This article is a logical continuation of the previous research presenting the initial estimates of the value of life in Russia based on analysis of the revealed preferences about employment in industries associated with high fatality risks. In addition to the previous results, this study provides a new theoretical model explaining the logic of choosing employment considering fatality risks and offers estimates of the value of life across educational and age groups. The empirical part of the paper is based on the RLMS HSE data for the period from 2010 to 2020; the author uses panel regression with random effects. The analysis shows that the average value of life in Russia is 287 million rubles, varying from 241 to 450 million rubles depending on levels of education achieved, and considering age value of life ranges from 329 to 349 million rubles (in those groups for which estimates are significant). Possible explanations for this variability are related to the human capital factor, which changes with age and education level. At the same time, the impact of human capital on the value of life can be both positive and negative.
value of life, compensation for risk, human capital, panel data, occupational injuries
In conditions of limited resources, decision makers have to make difficult choices regarding the allocation of funding. The validity of such decisions should be supported by considerations of the comparative effectiveness of the alternatives, in particular, the cost-benefit analysis based on their implementation. This approach implies a monetary assessment of costs and benefits, including the value of human life.
The term “value of life” is used in this paper with the same meaning as the concepts of “value of human life” and “value of statistical life” (the latter is most widely used in scientific literature).
The idea of measuring the value of life is an example when the theoretical justification for the introduction of the indicator was justified by practical necessity. Even before the publication of the first studies on this topic, in the late 1940s, similar calculations were carried out by the U.S. corporation RAND (Research and Development), fulfilling strategic orders of the U.S. Government to account for human losses during the Cold War (
At the moment, an officially approved methodology for calculating economic losses from mortality, morbidity, and disability of the population is used in Russia for similar purposes (Order of the Ministry of Economic Development… 2012). The essence of this methodology is that economic losses from mortality are defined as GDP losses due to a person’s removal from the workforce. The preferences of people are not considered in such calculation.
A similar approach to accounting for losses from mortality of the population in the framework of the cost–benefit analysis has been used and is still used in a number of other countries. Nevertheless, in most developed countries, this approach is becoming less and less popular and is being replaced by estimates of the value of life obtained based on an analysis of the population preferences. In particular, in the USA, most calculations carried out by government departments use estimates obtained considering people’s choices about employment in dangerous industries and occupations (
There are other approaches to assessing the value of life, including that based on the amount of life insurance death benefit, the amount of compensation to relatives of the deceased specified in regulatory legal acts, or the results of public surveys on the fair value of life. A detailed overview of the main approaches can be found, for example, in the works of (
The calculation of the value of life in Russia using this methodology is presented for the first time in (
In (
This article elaborates two previous studies by Ekaterina
The contribution of the article is threefold. Firstly, it proposes a new theoretical model reflecting the foundations and logic of calculating the value of life. Secondly, based on panel data for Russia, it analyzes the dependence of the value of life on age, which has long been and still is the subject of controversy in other research papers on this topic. Thirdly, it presents empirical estimates of the value of life across population groups defined by their level of education, which, as will be shown later, is one of the main factors differentiating the value of life.
The paper consists of an introduction, four main sections and a conclusion. In the main part, the author considers the theoretical foundations of value-of-life calculations, proposes a new model of equilibrium in the labour market taking into account the choice between safety and money, conducts a review of related empirical work, and presents estimates of the value of life in Russia depending on age and education levels.
An approach to estimating the value of life considering people’s willingness to pay for risk reduction, or, equivalently, to accept compensation for increased risk, was presented in the work of the Belgian economist
A simple theoretical justification for the use of the value of life indicator is determined by the formulas described below (
EU (p, w) = pus (w) + (1 – p)ud (w),(formula 1)
where p is the probability of staying alive, us (w) and ud (w) are utilities if an individual survives or dies, which depends on the amount of his wealth in each case (w).
The value of life itself is defined as the marginal rate of substitution between life safety and money in accordance with the formula:
where are the derivatives of utility functions in terms of wealth (w) if the individual survives or dies, respectively.
The existing approach to determining the value of life as the marginal rate of substitution between life safety and money has several significant drawbacks. Firstly, it takes into account only the marginal change in the amount of risk or the amount of wealth. This circumstance does not allow using this formula for cases when the changes are significant in magnitude. Secondly, it does not account for differences between individuals, including in their attitude to risk and their amount of human capital, whereas empirical studies confirm that there is such a differentiation (see, for example, (
In addition, this model has weak explanatory power for analyzing the mechanism of risk-related decision-making in the labour market, whereas this context is the most popular in empirical studies (
It should be noted that, in addition to this specification and its various modifications, there are a number of other, much more complex models in scientific literature that take into account many features of decision-making, including discounting factors, the possibility of accumulating assets, making wills, etc. (see, for example, (
As a compromise between the explanatory power of conceptual foundations and the realism of empirical implementation, a new theoretical model for calculating the value of life based on employment choices and accounting for the risk factor is proposed in the next section.
The theoretical model of employment choice presented below, that regards the differences in the magnitude of the risks of fatal injury by industry, explains the mechanism for determining the value of life.
This model considers a closed economy (there is no labour migration, the supply of labour is fixed) without government intervention. The economy is represented by two industries, in each of which there is one company producing the same product. The product market and the labour market are perfectly competitive. The solution of the model is determined within the framework of the partial equilibrium of labour demand and labour supply, taking into account the fact that workers choose between employment in a “safe” industry for lower wages or in a “risky” industry for a corresponding surplus in pay.
The key consequence of the above-mentioned assumptions of the model is that in terms of making decisions about employment, industries differ only in the magnitude of the risk of death, while other factors affecting the attractiveness of choosing employment in each of the industries do not affect workers.
Workers (i is the index denoting the reference number of each employee) make employment decisions to maximize the expected utility (EUi), which is determined by the probability that the employee will survive (pr is the probability of death at work) and his utility from consumption in case of survival:
EUi = (1 – pr)ui (ci, ηi),(formula 3)
where ci is the volume of consumption of the i-th individual, ηi is a constant reflecting the degree of relative risk aversion by this individual.
The formulation is similar to the model in (formula 1) with the only difference that we assume in advance that the utility in case of death equals zero. This assumption would be unfounded if we believed that employees value bequests, because in the event of their death, relatives can receive compensation. However, since in fact in the labour market, compensation for risk usually is a regular wage surplus, after the death of an employee, their family (except for some cases stipulated in the legislation on compensation to the relatives of the deceased) simply loses this source of income, so that death cannot be considered to bring non-zero utility.
The utility of an individual (ui) from consumption is expressed by a function with constant relative risk aversion (CRRA), taking into account that the attitude to risk can also vary among individuals:
Next, we will omit the limiting case in which ηi = 1 since this is not essential for the conclusions of the model.
The assumption of differences in the degree of risk aversion is difficult to account for in the process of empirical assessment, but it is fundamentally important for understanding reality, since some people (“preferring adventure”) may be more willing to engage in risky work, while others (“preferring tranquility”) value safety significantly higher.
Workers also differ in the amount of human capital (hi) which affects their productivity. The amount of human capital depends on the level of education (si) and the age of the employee (ai):
hi = hi (si, ai),(formula 5)
The dependence of the amount of human capital on the level of education achieved is more likely to be positive, but the relationship with age is less unambiguous. This dependence can be non-linear, since, on the one hand, over the years, a person gains experience and develops certain skills, but, on the other hand, as they age, physical abilities may deteriorate, and productivity may decrease.
In the absence of the possibility of borrowing and savings, as well as any sources of income other than labour income, a one-period budget constraint takes the following form:
ci = wi,(formula 6)
where wi is the wage of the i-th employee.
The task of firms is to maximize profits. The sphere of production is represented by two industries (j is the number of the industry, j = {1,2}). Output in each industry is described by the Cobb-Douglas production function and depends on the level of technological progress (A), the amount of physical capital (K), the number of employees (L) and the average level of human capital per employee (H). For simplicity, we assume that the marginal cost of renting capital and the depreciation rate are zero, since this premise does not lead to a limitation of the generality of results in terms of calculating the value of life. Thus, the marginal costs of firms are related only to labour costs, and the output function looks as follows:
Each of the industries employs Lj workers, each of whom has a certain level of human capital:
All firms are risk-neutral. Industries differ in the probability of death of an employee at work, depending on whether firms in this industry incur additional costs (v) to ensure occupational safety. By introducing such a distinction, we assume that in the real economy, firms can potentially reduce the risk to the lives of employees to zero if they make the necessary investments in ensuring safety at the workplace. Since the cost of such investments can be substantial, it is not profitable for firms to invest if employees agree to take on the risk in exchange for monetary compensation, the amount of which is less than the estimated cost of the necessary investments.
In the first industry (j = 1), the risk of death at work is zero, and the marginal costs for each employee (mcij) are the sum of his wage (wij) and the costs associated with ensuring occupational safety per employee (v > 0):
In the second industry (j = 2), the risk of death at work is greater than zero (but less than one, since we do not consider the marginal case in which the probability of the death of an employee is 1, because in the absence of the value of bequests, it makes no sense to agree to imminent death for any amount of money), and firms do not incur additional safety costs:
Within the framework of this model, it is assumed that each employee is employed in one of the industries. The marginal product of a unit of labour (one worker) per unit of human capital is equal to the partial derivative of the expression given by formula 7, with respect to (HjLj):
The balance of supply and demand for labour in each of the industries implies equality of the marginal product of labour provided by a certain level of human capital (mpj × hi (si, ai)) to marginal costs of firms per employee (mcij in formulas 9 and 10):
Thus, an employee’s salary in a “safe” industry, other things being equal (including with an equal level of human capital), will be lower than in a “risky” industry due to the deduction of labour safety costs (which is similar to the situation when a risk premium equal to v is introduced in a dangerous industry).
According to the definition of the value of life accepted in scientific literature, it is equal to the marginal rate of substitution between safety of life with money. For each employee, this parameter is calculated using the following formula:
Thus, the value of life positively depends on the amount of human capital and the degree of employee’s risk aversion. It is important to note that such an approach to estimating the value of life is valid only for the extreme case when we assume that the probability of death in a relatively risk-free situation increases by a small amount. If the difference in risk is large, the use of the marginal substitution rate is irrelevant. In this case, it would be more correct to estimate the value of life as the amount of “fair compensation”, that is, satisfying workers in terms of expected utility, for the probability of death close to 1.
To determine fair compensation, we consider a situation in which employees do not care which industry they work in, since in both cases they expect the same level of utility. Equality of expected utilities in the case of zero (j = 1) and non-zero (j = 2) risk is determined by the following expression:
Since, in accordance with the budget constraint, the level of consumption is equal to the amount of wages, we can represent the expression from formula 14 as follows:
By converting this expression, we can determine the “fair” value of the risk premium:
This value reflects the amount of the minimum allowance at which the employee agrees to choose a risky job. Thus, the value of this premium increases as the level of human capital (based on age and education level) increases, as the degree of risk increases, and as the employees’ risk aversion increases.
In addition, this value also depends on the decisions made by other individuals, since they are responsible for the distribution of labour and human capital between the two industries, and, accordingly, for the demand for labour in each of the industries. The more labour and human capital involved in a “risky” industry and the less in a “safe” one, the higher the premium should be. The meaningful interpretation is that the more workers there are in the industry and the higher the amount of human capital involved, the smaller the marginal product that falls on each additional employee and unit of their human capital, and the lower their resulting wage.
This model illustrates the basic economic intuition behind the term value of life within the framework of the use of the compensating wage differential methodology: employees can choose whether to accept additional risk for an appropriate compensation or to work in a safer, but lower-paying job. In addition, the interpretation of this situation is also given above by firms: theoretically, they could minimize the risks of occupational injuries by spending additional resources on improving working conditions, but in terms of costs, it may be more profitable to simply pay employees an appropriate compensation.
At the same time, considering the above-mentioned prerequisites, this model has several significant limitations. One of the key among them is that industries or firms differ only in the level of risk. Obviously, in reality, the differences between industries and types of work within them are much wider, which, of course, will affect both the attractiveness of choosing employment in a particular industry for employees, and the amount of wages offered to them. This may concern not only working conditions, but also the requirements imposed on employees, which calls into question the premise of perfect competition in the labour market. For example, competition between workers with high and low levels of education may be far from perfect, since certain types of work (for example, in the field of education or high technology) may be available only to people with higher education, so in some sense this partly gives them monopoly power, as a result of which the wages offered to them will be higher even in the absence of risk.
In addition, in terms of applicability to reality, the premise of a closed economy and the absence of labour migration may play an important role, since labour migrants (primarily working illegally) may be forced to engage in more dangerous work even in the absence of fair compensation for risk due to the fact that their choice regarding employment is limited.
Another important point is the use of a simple one-period budget constraint. In real life, employment decisions can be influenced by the presence of a discounting factor, as well as the availability of other sources of income, the availability of borrowing and savings, etc. All these factors create the need for an intertemporal choice, the results of which may differ significantly from a single-period specification.
Despite all the limitations listed above, within the framework of this model, the main task was to reflect the essence of the choice regarding employment considering the risk factor, while further improvements can serve as directions for future research in this area.
The most significant contribution to the empirical assessment of the value of life belongs to the U.S. economist William Viscusi. In his works and in collaboration with other scientists, he proposed and continues to develop the most popular methodology for assessing the value of life based on determining people’s willingness to accept risky work for appropriate compensation in wages (see, for example, (
According to the methodology proposed by
where wagei is the hourly wage rate of an employee with index i, Xi is the vector of control variables, β, γ1, γ2 are regression coefficients, εi is idiosyncratic shock.
At the second stage, the death risk coefficient (γ1) is used to calculate the value of life directly according to the following formula:
where average wage is the average hourly wage in the sample, is the estimate of the coefficient for fatality risk in production from the equation of formula 17, the number of deaths is calculated per 100,000 people, the duration of the working year is taken as 2,000 working hours.
In another paper,
In addition to individual studies on the value of life, meta-analyses have become increasingly popular in recent years (see, for example, (
A partial analysis of the dependence of the value of life on age was carried out in (
In the empirical part of the study presented in the next section, the dependence of the value of life on age is tested on Russian data. In addition, the author analyzes the relationship with education, seeing it as another crucial factor affecting the amount of human capital.
The empirical calculations presented below are based on the approach traditionally used in foreign studies to estimate the value of life based on the compensating wage differential and economic intuition, following from the theoretical model described above. As can be seen from table 1 with descriptive statistics, the maximum number of deaths is 24 per 100,000 people. This risk can be considered relatively small, so the calculation of the value of life as the marginal rate of substitution between safety of life and money will be correct. In addition, dividing the sample into subgroups by age and level of achieved education enables testing theoretical conclusions about the relationship between the value of life and the amount of human capital.
Calculations are carried out on the data of the Russian Longitudinal Monitoring Survey (hereinafter referred to as the HSE RLMS) for the period from 2010 to 2020. The author uses a representative individual sample and draws the observations having complete information on the following parameters:
By analogy with foreign papers on this topic, only working individuals with non-zero wages are considered, and the missing values are ignored.
The risks of fatal and non-fatal injuries in the workplace are calculated according to the Rosstat Bulletin Industrial injuries in the Russian Federation as the ratio of the number of occupational injuries in each specific industry to the total number of people employed in this industry per 100,000 people.
Table
Variable | Average value | Standard deviation | Median | Minimum value | Maximum value |
---|---|---|---|---|---|
Wage (rubles per hour) | 93.90 | 71.83 | 78.51 | 0.085 | 2463.56 |
Age (years) | 40.81 | 12.2 | 40.0 | 14.0 | 87.0 |
Risk of fatal injury at work (number of deaths per 100,000 workers in the industry) |
5.565 | 5.63 | 4.62 | 0.0 | 24.0 |
Risk of non-fatal injury at work (number of non-fatal injuries per 100,000 workers in the industry) |
108.33 | 83.535 | 93.76 | 0.0 | 452.0 |
Categorical variables (share in the total number of observations) |
|||||
Gender | 0 — men | 1 — women | |||
0.443 | 0.557 | ||||
Distribution by level of education | Incomplete secondary | Secondary general | Vocational training school | Technical school | Higher |
0.06 | 0.11 | 0.21 | 0.24 | 0.38 | |
Distribution by age groups | Under 25 | 25–34 | 35–44 | 45–54 | Older than 54 |
0.08 | 0.27 | 0.27 | 0.22 | 0.16 | |
Marital status | Never married | Married | Live together, not registered | Divorced | Widow or widower |
0.13 | 0.59 | 0.14 | 0.09 | 0.05 | |
The marriage is registered, but spouses do not live together | Did not answer the question | ||||
less than 0.01 |
Panel data enable accounting for important unobservable factors affecting wage variation as individual and time effects. In terms of individual, time-invariant characteristics, one of these factors is most likely labour productivity. Time effects correct the influence of general dynamic trends, in particular structural fluctuations in the labour market.
As it was shown in (
where wageikt is the rate of hourly wage of a worker with index i, employed in industry k in year t, Xit is the vector of control variables (age, age squared, gender, education level, region of residence, marital status, occupational group), fatal injury riskkt and non – fatal injury riskkt are the risk of fatal and non-fatal injury to the production in industry k in year t accordingly, αi is the individual effect, δt is the time effect, εikt is idiosyncratic shock.
In (
Due to differences in the number of observations and the number of variables, some of which also fall out due to the lack of variation over time, it is incorrect to choose among models with different types of effects based on statistical tests (for example, the Hausman test). It is possible to compare estimates using both types of effects on a complete sample, as it was shown in Zubova’s work (
Division into educational groups was carried out in accordance with the main stages of education: incomplete secondary education, secondary general education, vocational training school, technical school, and higher education. Age groups are represented by ten-year intervals with the exception of the youngest and oldest ones. The youngest group includes individuals from 18 to 24 years old, as this is usually the age when young people do not yet have a full education and are forced to combine work with study. The oldest group includes individuals who have reached 55 years of age and older, that is, in pre-retirement and retirement ages.
Table
Total sample | Incomplete secondary | Secondary general | Vocational training school | Technical school | Higher | |
---|---|---|---|---|---|---|
Constant | 3.445*** | 4.136*** | 3.993*** | 4.207*** | 3.97*** | 3.897*** |
(1.043) | (0.43) | (0.356) | (0.251) | (0.229) | (1.9) | |
Age | 0.034*** | 0.036** | 0.035*** | 0.035*** | 0.066*** | 0.06*** |
(0.004) | (0.016) | (0.013) | (0.009) | (0.005) | (0.007) | |
Age 2 | -0.001*** | -0.001*** | -0.001*** | -0.001*** | -0.001*** | -0.001*** |
(0.0001) | (0.0002) | (0.0001) | (0.00005) | (0.00002) | (0.0001) | |
Gender (female = 1, male = 0) | -0.341*** | -0.334*** | -0.302*** | -0.355*** | -0.332*** | -0.337*** |
(0.021) | (0.085) | (0.067) | (0.047) | (0.004) | (0.032) | |
Risk of fatal injury | 0.008*** | 0.016** | 0.008 | 0,01** | 0,009** | 0,006* |
(0.002) | (0.007) | (0.005) | (0.003) | (0.004) | (0.003) | |
Risk of non-fatal injury | 0.0002 | 0.0002 | 0.0003 | 0.0002 | 0.0002 | 0.0002 |
(0.0001) | (0.0005) | (0.0004) | (0.0002) | (0.0003) | (0.0002) | |
Control for marital status | yes | yes | yes | yes | yes | yes |
Control for the region of residence | yes | yes | yes | yes | yes | yes |
Control for the level of education | yes | _ | _ | _ | _ | _ |
Control for professional groups | yes | yes | yes | yes | yes | yes |
Time/Individual effects | yes/yes | yes/yes | yes/yes | yes/yes | yes/yes | yes/yes |
Adjusted R2 | 0.455 | 0.437 | 0.449 | 0.455 | 0.445 | 0.399 |
Number of observations | 73,785 | 4,093 | 8,165 | 15,760 | 17,947 | 27,820 |
Based on the coefficients for the death risk variable from Table
Total sample | Incomplete secondary | Secondary general | Vocational training school | Technical school | Higher | |
Average wage per hour, in rubles | 93.89 | 77.31 | 81.78 | 81.58 | 81.12 | 115.09 |
Coefficient for fatal injury | 0.00838 | 0.015935 | not significant | 0.010033 | 0.009203 | 0.005731 |
Value of life, in rubles (in 2010 prices) | 157,359,640 | 246,386,970 | - | 163,698,428 | 149,309,472 | 131,916,158 |
Value of life, in rubles (in 2020 prices) | 287,436,644 | 450,055,960 | - | 299,015,216 | 272,732,027 | 240,961,010 |
Similarly to the analysis by educational groups, table 4 presents estimates of the regression of the natural logarithm of wages across age groups.
The fatality risk coefficients from table 4 allow for the calculation of the value of life by age groups presented in table 5. As can be seen from the last two columns, coefficient estimates are not significant for people over the age of 45, so the value of life cannot be calculated. This is probably due to the fact that at older ages people are less likely to engage in risk-related work for health reasons. Nevertheless, the estimate of the value of life for the full sample is significantly lower than in any of the groups up to 44 years old, thus, we can conclude that the older groups put downward pressure on it.
The values calculated based on this methodology may be biased upwards since they are not adjusted for the presence of unobservable factors of variation in the form of fixed effects. However, these differences are relatively small and fall within the margin of error, and the estimates can be considered fairly accurate.
As shown in (
On the other hand, in comparison with the alternative estimates listed above, the results of this paper are closest to the official estimates of government departments and empirical works in the USA (11.4 million US dollars in 2020 prices according to data of the U.S. Department of Health and Human Services; according to the results of the analysis in
Total sample | Under 25 | 25–34 | 35–44 | 45–54 | Older than 54 | |
Constant | 3.445*** | -2.806 | 3.972** | 3.413 | 4.013 | 5.864*** |
(1.043) | (2.637) | (1.493) | (2.419) | (3.453) | (2.474) | |
Age | 0.034*** | 0.588** | 0.008 | 0.022 | 0.043 | -0.009 |
(0.004) | (0.217) | (0.068) | (0.091) | (0.129) | (0.058) | |
Age 2 | -0.001*** | -0.012* | -0.001 | -0.0002 | -0.0001 | -0.0002 |
(0.0001) | (0.005) | (0.0001) | (0.001) | (0.001) | (0.0004) | |
Gender (female=1, male=0) | -0.341*** | -0.306*** | -0.405*** | -0.391*** | -0.297*** | -0.233*** |
(0.021) | (0.054) | (0.032) | (0.041) | (0.053) | (0.065) | |
Risk of fatal injury | 0.008*** | 0.012* | 0.01*** | 0.009* | 0.006 | 0.006 |
(0.002) | (0.005) | (0.003) | (0.003) | (0.004) | (0.005) | |
Risk of non-fatal injury | 0.0002 | 0.0002 | -0.00003 | -0.00005 | 0.0003 | 0.0003 |
(0.0001) | (0.0004) | (0.0002) | (0.0002) | (0.0002) | (0.0003) | |
Control for the level of education | yes | yes | yes | yes | yes | yes |
Control for marital status | yes | yes | yes | yes | yes | yes |
Control for the region of residence | yes | yes | yes | yes | yes | yes |
Control for professional groups | yes | yes | yes | yes | yes | yes |
Time/Individual effects | yes/yes | yes/yes | yes/yes | yes/yes | yes/yes | yes/yes |
Adjusted R2 | 0.455 | 0.369 | 0.402 | 0.484 | 0.497 | 0.475 |
Number of observations | 73,785 | 6,010 | 20,304 | 19,558 | 16,281 | 11,632 |
Total sample | Under 25 | 25–34 | 35–44 | 45–54 | Older than 54 | |
Average salary per hour, in rubles | 93.89 | 82.62 | 100.45 | 102.98 | 91.63 | 76.08 |
Coefficient for fatal injury | 0.00838 | 0.011567 | 0.009849 | 0.008755 | not significant | not significant |
Value of life, in rubles (in 2010 prices) | 157,359,640 | 191,133,108 | 197,866,410 | 180,317,980 | _ | _ |
Value of life, in rubles (in 2020 prices) | 287,436,644 | 349,128,018 | 361,427,218 | 329,372,863 | _ | _ |
As the practice of public administration in many developed countries shows, the value of life is the most important parameter for cost–benefit analysis of public policy measures. Particularly, in the USA, these estimates are calculated at the official level and are published on the official websites of government departments (see, for example, (U.S. Department of Health and Human Services 2021; U.S. Department of Transportation 2021; U.S. Office of Management and Budget 2003)). The introduction of the practice of calculating and using such estimates in the Russian Federation should contribute to improving the quality of public administration in terms of policy planning, as well as allowing the use of a methodology comparable with other countries for analyzing the comparative effectiveness of government programmes.
This article presents a new theoretical model explaining the mechanism of choice in the labour market considering fatality risks. The contribution to the development of the methodology for estimating the value of life is that this model enables understanding the economic logic of the formation of this indicator and can be used to explain the results of empirical calculations. In addition, the use of parameters such as the amount of human capital and the degree of risk aversion in the model provides grounds for further research, which should enable clarifying existing estimates.
The empirical part of the paper presents calculations of the value of life in Russia across educational and age groups. The results of the analysis by age groups generally confirm the studies based on the U.S. data and show that the dependence of the value of life on the age is nonlinear, that is, the indicator increases up to a certain period, and then begins to decrease. At younger ages, these changes may be associated with an increase in human capital due to the acquisition of experience, knowledge, and skills, which is consistent not only with the general results of other studies on this topic, but also with the logic proposed within the framework of the developed theoretical model. At the same time, the decrease in the value of life in the group aged 35 to 44 years old and statistical insignificance of the estimates for older age groups most likely indicate that with age people are less inclined to engage in risky work or receive an insignificant increase in wages for this. Firstly, due to the deterioration of health, as well as the accumulation of knowledge and experience that open up a wider choice of employment in safe industries, risky work may become less attractive with age. Secondly, an increase in the likelihood of occupational injuries for health reasons can lead to a decrease in productivity, and, accordingly, competitiveness in the labour market in risk-related industries.
The analysis of the value of life across educational groups, to the author’s knowledge, is carried out in this study for the first time. However, the calculations show that this factor is even more significant for explaining the differentiation of the value of life than age. The death risk coefficient and the average wage are negatively correlated, but the deviation of coefficients is significantly larger, which leads to a decrease in the value of life with an increase in the level of education. Although this result contradicts the logic of the theoretical model, it is most likely due to the decline in the prevalence of risky professions among people with higher education. A possible interpretation is that people with a higher level of education, other things being equal, have greater opportunities to receive decent wages without putting their lives at risk, and those of them who choose risky professions are characterized by a lower degree of risk aversion (in the theoretical model, we conditionally called them “preferring adventure”).
Order of the Ministry of Economic Development of Russia No. 192, Ministry of Health and Social Development of Russia No. 323n, the Ministry of Finance of Russia No. 45n, Rosstat No. 113 (2012) “On approval of the Methodology for calculating economic losses from mortality, morbidity and disability of the population” of 10.04.2012 (Registered with the Ministry of Justice of Russia on 28.04.2012 No. 23983) https://rg.ru/pril/73/43/77/23983_metodologiia.pdf (in Russian)
U.S. Department of Health and Human Services (2021) Updating value per statistical life (VSL) estimates for inflation and changes in real income. https://aspe.hhs.gov/sites/default/files/2021-07/hhs-guidelines-appendix-d-vsl-update.pdf
U.S. Department of Transportation (2021) Treatment of the value of preventing fatalities and injuries in preparing economic analyses. https://www.transportation.gov/resources/value-of-a-statistical-life-guidance
U.S. Office of Management and Budget (2003) Circular A-4. https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf
Zubova Ekaterina Andreevna, Fox Fellow (2021-2022) at Yale University, New Haven, Connecticut, 06511, USA. Email: ekaterina.zubova@yale.edu