University of Mississippi eGrove Electronic Theses and Dissertations Graduate School 2013 An Analysis Of Shift Work: Compensating Differentials And Local Economic Conditions Mary Colene Trent University of Mississippi Follow this and additional works at: https://egrove.olemiss.edu/etd Part of the Economics Commons Recommended Citation Trent, Mary Colene, "An Analysis Of Shift Work: Compensating Differentials And Local Economic Conditions" (2013). Electronic Theses and Dissertations. 956. https://egrove.olemiss.edu/etd/956 This Dissertation is brought to you for free and open access by the Graduate School at eGrove. It has been accepted for inclusion in Electronic Theses and Dissertations by an authorized administrator of eGrove. For more information, please contact [email protected]. AN ANALYSIS OF SHIFT WORK: COMPENSATING DIFFERENTIALS AND LOCAL ECONOMIC CONDITIONS A Dissertation presented in partial fulfillment of requirements for the degree of Doctor of Philosophy in the Department of Economics The University of Mississippi by COLENE TRENT May 2013 Copyright Colene Trent 2013 ALL RIGHTS RESERVED ABSTRACT 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 ii 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’s 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. iii DEDICATION To my husband, David Trent, whose daily encouragement, countless prayers, and unfailing support enabled me to persevere. I am forever indebted to him for serving as a loving witness to my life, including all of the struggles and joys that these four years have involved. To my mother, Deborah Burns, who has served as a beautiful example of strength, sacrificing throughout her life so that I may succeed. She listened as I read Nancy Drew books, quizzed me in preparation for spelling bees, helped to grow an endless amount of salt crystals for my science projects, and proofread countless college essays and this dissertation. My doctoral degree is a direct result of her dedication and support of my academic pursuits. To my professors who invested their time in me so that I may someday invest in the lives of my students. To my undergraduate professors who inspired me to attend graduate school and teach economics. To my family and friends who had faith in my abilities throughout this challenging, yet rewarding journey. In memory of my father, Howard Burns. iv LIST OF ABBREVIATIONS BLS Bureau of Labor Statistics CPS Current Population Survey ML Maximum Likelihood NLSY79 National Longitudinal Survey of Youth 1979 v ACKNOWLEDGMENTS I am especially grateful to Dr. Walter Mayer for his continuous advice and encouragement. As my dissertation chair, he has provided a wonderful example of what it means to be a scholar. Without his guidance and his willingness to invest in my research interests, this work would not have been possible. I can never thank him enough for all of the time he took to assist me with this project and with planning for my career. My committee members, Dr. William Chappell, Dr. Richard Forgette, and Dr. Jon Moen have provided several suggestions that have been crucial to this paper. Their support of my ideas, research, and ambitions is humbling and greatly appreciated. I am grateful to all those at the University of Mississippi, both professors and students, with whom I have had the pleasure to work during the past four years. I am especially thankful for the opportunities for teaching and research provided by the economics department which will benefit me throughout my academic career. vi TABLE OF CONTENTS ABSTRACT .................................................................................................................................................. ii DEDICATION ............................................................................................................................................. iv LIST OF ABBREVIATIONS ....................................................................................................................... v ACKNOWLEDGMENTS ........................................................................................................................... vi CHAPTER I .................................................................................................................................................. 1 INTRODUCTION AND MOTIVATION .................................................................................................... 1 1.1 Introduction ......................................................................................................................................... 1 1.2 Motivation ........................................................................................................................................... 3 1.2.1 The Theory of Compensating Differentials ................................................................................. 3 1.2.1.1 The Theory of Compensating Differentials Applied to Shift Work ...................................... 6 1.2.2 Impact of Local Economic Conditions on Compensating Differentials .................................... 10 1.3 Trends in Shift Work ........................................................................................................................ 12 1.3.1 Demographic Characteristics ..................................................................................................... 13 1.3.2 Reasons for Selecting Shift Work .............................................................................................. 16 1.4 The Inconvenience of Shift Work ..................................................................................................... 19 1.4.1 Difficulty Sleeping and Sleepiness during Work ....................................................................... 20 1.4.2 Increased Health Problems ......................................................................................................... 20 1.4.3 Adverse Effects on Family and Social Life ............................................................................... 21 1.4.4 Increased Risk of Injury and Accidents on the Job .................................................................... 21 1.5 Shift Differentials .............................................................................................................................. 22 1.6 Contribution to the Literature ........................................................................................................... 24 CHAPTER II ............................................................................................................................................... 27 LITERATURE REVIEW ........................................................................................................................... 27 2.1 Sample Selection Models .................................................................................................................. 27 2.1.1 Sample Selection Problem and Related Studies ......................................................................... 27 2.2 Switching Regression Models ........................................................................................................... 28 2.2.1 Switching Regression Model with Endogenous Switching ....................................................... 29 2.2.1.2 Estimation Methods: Lee Model .......................................................................................