An Analysis Of Shift Work: Compensating Differentials And Local Economic Conditions

The theory of compensating differentials asserts that workers facing undesirable work conditions, such as night shift work, should receive compensating wage differentials. The theory assumes that workers can easily find jobs with desirable characteristics; thus, compensating wages are necessary to induce workers to take jobs with undesirable characteristics. This dissertation considers a variation of the theory of compensating differentials in which labor markets are weak. If workers are more likely to work night shifts in areas with weak economic conditions and if firms are less likely to offer compensating differentials for night shift work in areas with weak economic conditions, weak regional economies may lead to smaller compensating differentials for night shift work. Using nlsy79 data from 1990-2000, this paper employs an endogenous switching regression model to analyze wages of day and night shift workers and shift choice. The model is estimated using both the lee two-step method and maximum likelihood. Two measures of local economic conditions, the local unemployment rate and the state leading index, are used. The models provide evidence that shift differentials and local economic conditions significantly impact shift choice. Of the two local economic condition variables used in the analysis, the leading index is a stronger predictor of shift choice. This paper develops a new method of analyzing the impact of the interaction between the shift differential and local economic conditions on shift choice, providing limited evidence that compensating differentials for night shift work may be lower when local economies are weak. The calculated interaction effects are small. Estimated wage premiums for night shift work are negative, and are approximately half of day wages in the 1990 cross-section. Estimated wage differentials for night shift work are smaller in pooled cross-section analysis, ranging from roughly 2% to 11% below day wages. Analyzing cross-sections over time indicates that shift differentials were below day wages throughout most of the 1990\u27s but in 2000, night wages were approximately 7-11% higher than day wages. Overall, the results provide evidence that individuals take both the size of the wage premium and local labor market conditions into account when selecting working hours