Kerkvliet, Joe

Loomis, John B.

Weiler, Stephan

English

Research Papers in Economics

Western Economics Forum, Fall 2007 
  10
 
 Are High Wage Jobs Hazardous to Your Health? 
The Myth That Attracting Higher Paying Extractive Industry Jobs 
Is a Desirable Community Economic Development Strategy 
 
John Loomis, Joe Kerkvliet, and Stephan Weiler
1 
 
 
Current Economic Development Strategies 
 
A well known objective of local economic development specialists is to increase the number of 
high paying jobs in a community (Power 1988). High wage jobs are often viewed as a cure for 
whatever is economically ailing a community (Power 1996).  High wage jobs are believed to 
improve the well being of the higher paid employees and their families, and ergo, the community 
is better off. While often this premise is simply taken on faith, some economic development 
specialists ground this recommendation in economic base models (Power 1988). In the rural 
West these high paying jobs are often in forestry, construction and mining. U.S. Bureau of Labor 
Statistics (BLS) data confirm that mining and construction pay well, averaging $20 an hour.  
 
Thus, mining company officials and even federal land management agencies such as the 
Bureau of Land Management (BLM) often tout the higher paying jobs associated with mining as 
a regional economic development benefit to the communities and counties. A recent BLM 
supplemental environmental impact statement noted that natural gas development would 
“contribute to rising wage levels” in three Wyoming counties because expected earnings per job 
in energy development exceeds current average earnings per job (BLM 2006).   
 
Conversely, many economic development specialists often downplay service sector jobs relative 
to mining and forestry jobs. Few development specialists would trade low paying tourism jobs, 
which depend upon preservation of natural resources and amenities, for the associated “lost” 
mining or forestry jobs.   Indeed, BLS data confirm that workers in the “Leisure and Hospitality” 
industry make just $10 an hour, half what workers make in mining and construction. Thus 
economic development specialists may view agro-tourism primarily as a way to supplement 
income from production agriculture or help diversify a local economy. 
 
So are workers in mining and construction really twice as well off as workers in the leisure and 
hospitality industry? Given voluntary employment contracts, worker mobility, roughly equivalent 
educational requirements, and a reasonably competitive job market, economic principles would 
suggest no such disparity in worker well being or utility. In fact, given the labor market 
conditions described above, at the margin, the well being or utility of workers in all employment 
opportunities in a community, whether mining, hospitality or value-added forestry industries are 
probably equal, otherwise there would be an incentive for employees to switch.  
                                                 
1 John Loomis (Corresponding Author) is Professor, Department of Agricultural and Resource Economics, Colorado 
State University.  Kerkvliet is with The Wilderness Society in Bozeman, Montana.  Weiler is Professor, Department of 
Economics, Colorado State University.  The authors would like to thank Ikuho Kochi at Colorado State University for 
providing us many useful leads on mortality and morbidity data.  The authors would also like to thank an anonymous 
reviewer for suggestions that improved the exposition of the article.  Any remaining errors are the responsibility of the 
authors.  
 
 Western Economics Forum, Fall 2007 
  11
Linking Wage Hedonic Analysis to Economic Development Strategies 
 
A major factor in the wage disparity is that the risk of fatality in mining is more than ten times 
that in the hospitality and leisure industry. In particular, BLS data for 1992-1995 (Viscusi and 
Aldy 2003) and 2005 (BLS 2006) documents 25 deaths per 100,000 workers in mining. By 
comparison, deaths per 100,000 workers in the leisure and hospitality industry during 2005 was 
1.8 (BLS 2006). The recent acceleration of oil and gas mining has brought increasing attention 
to deaths, as highlighted in a recent article entitled “Disposable Workers of the Oil and Gas 
Fields” (Ring 2007). 
 
Moreover, the risk of nonfatal occupational injury is higher in extractive industries.  In Montana, 
for example, a miner is more than 2.5 times more likely to suffer a nonfatal injury as a worker in 
the leisure and hospitality industry (Catlett 2007).   
 
Many economic development specialists are apparently not aware of the economic principles 
underlying the “hedonic wage methodology” which has extensively analyzed the effect of 
workplace risk on wages. This methodology has demonstrated that in order to recruit and retain 
workers into high risk jobs, employers must pay these workers more. The wage hedonic method 
regresses the wage rate against risk of death, risk of injury as well as several control variables 
such as human capital (e.g., education levels), and worker characteristics (e.g., age). In addition 
other non-risk characteristics of the job (e.g., supervisory duties, flex time, etc.) are included as 
explanatory control variables as well. The regression slope coefficients on risk of death and risk 
of injury provide the “implicit wage compensation” or compensating wage differential for each of 
these risks. The wage differential is largely compensation for the added risk of death (Viscusi 
and Aldy 2003; Taylor 2003).    
 
These wage differentials amounted to over $140 billion in 1990, nearly 5 percent of total wages 
paid (Viscusi 2007).  In high wage industries the percentage of wage premium is likely much 
higher.  It is from comparing how much additional wages must be paid to compensate for risk 
that the value of a statistical life is calculated (Viscusi and Aldy 2003). This value is routinely 
used by federal agencies to quantify the benefits of reducing not only workplace risk, but also 
other safety regulations.  
 
Even some economists in their explanations of wage disparities between the tourism sector 
versus extractive industry have overlooked the job risk element and the explicit link with hedonic 
wage theory. For example, Power (1996) provides several reasons why tourism jobs report 
lower wages, including the frequent understatement of tip income, more flexible work hours, etc. 
While these are certainly part of the explanation for the wage disparity, so are differences in risk 
of death.  
 
The hedonic wage theory also provides insights into other aspects of this disparity. As noted by 
Power (1996) flexible work hours enjoyed by many waiters and waitresses, and enjoyable work 
(e.g., fishing and rafting guides, ski patrollers, etc.) or work environment (e.g., ski lift operators 
and outdoor science school instructors) provide sufficiently high utility so employers do not need 
to pay a wage premium to attract job seekers. Risk of death and injury is also quite low in the 
leisure industry on a par with retail trade and information services (BLS 2006 and Catlett 2007).  
 
Higher wages in mining could also be compensating workers for another type of occupational 
risk inherent in extractive industries, namely the risk of layoffs during bust periods. In that sense, 
a related hedonic rationale for high extractive industry wages could be that such workers face 
recurring jobless periods due to these industries’ cyclical nature (e.g., Neumann and Topel Western Economics Forum, Fall 2007 
  12
1991). In such a scenario, companies pay high wages to offset the “risk” of unemployment 
spells, justifying this wage premium with the assurance of longer-term local pools of labor that 
can be tapped for high-profit boom periods. Such a wage premium translates into high-income 
flows for the local economy as well. 
 
Yet this “unemployment risk” rationale could not explain wage or jobless patterns in Appalachia, 
one of the most extractive-dependent and highest unemployment areas of the nation (Weiler 
2000; Weiler 2001). Analyses of detailed local data in West Virginia found that unemployment 
risk was not systematically related to either wage patterns or jobless queues, suggesting that 
other factors - - such as occupational hazards - - were responsible for the noted wage 
premiums.    
 
While some tourism jobs can also be cyclical, they are more predictably cyclical. That is, 
workers at ski areas or hotels know ahead of time what their periods of employment will be as 
compared to the unpredictability faced by miners. In fact, the seasonality of the employment is 
to some workers a positive attribute of the job, allowing them to pursue their own leisure 
activities during the “off season”. For others, the closing of winter recreation season brings new 
seasonal jobs (e.g.,  river guides, mountain bike rentals) or allows for following other recreation 
visitors to their new recreation locations (e.g., summer park ranger).  
 
 
Community Economic Development Strategies Revisited 
 
Given hedonic wage theory, it would seem appropriate for economic development specialists 
and community leaders that employ them (mayors, city councils) to rethink the single minded 
pursuit of high wage jobs. While high wage jobs, holding everything else constant, are preferred 
to low wage jobs, hedonic wage models suggest that everything else will not be constant. 
Certainly high wage jobs that represent returns to skills and education (e.g., medical and health 
care field, professional and business services) would be attractive. Maintaining an attractive 
natural environmental and high environmental quality has been found to attract retirees (Power 
1996), and therefore medical and health professionals that tend to them.  
 
But frequently, public lands planning in the West involves trade-offs of opening new areas for 
mining versus preserving them for recreation, wildlife, and open-space. The increasing density 
of oil and gas drill rigs per unit of land leads to energy extraction becoming the sole “multiple 
use”, as other uses and users (e.g., hikers, mountain bikers, hunters, wildlife viewers) are 
displaced. This displacement will likely result in direct reductions in tourism jobs and longer term 
reductions in other service industry jobs, as potential migrants choose locations where natural 
amenities have been preserved.  As noted above, conventional economic development 
specialists might view the gain of $20 an hour mining jobs at the expense of $10 an hour 
tourism jobs as a net gain for community well being. However, hedonic wage methodology 
would suggest there has likely been no change in overall well being, as each wage is an 
“equilibrium wage”, the amount just necessary to induce a worker into the respective 
occupations. For example, even if wage premiums were offered for the heightened risk of 
unemployment in cyclical extractive industries, firms would only pay enough of a premium to just 
offset the latter risk to workers to make potential workers equally well-off and willing to work at 
the mining job as at the local bicycle repair store. Such a situation would again leave better-paid 
extractive workers with the same level of well-being as lower-paid service workers, alongside 
the additional private and public capital planning problems inherent in local economies beset by 
boom/bust cycles. These high-variance economies tend to discourage longer-term investment, Western Economics Forum, Fall 2007 
  13
entrenching their narrow dependence on extractive industries and perpetuating a shallow 
economy based on transient labor, capital, and extractive viability (Graves, Weiler, and Bonner).  
 
Economic development specialists and community officials concerned about the well being of 
workers in the community and the overall community’s well being should not focus on simplistic 
indicators like average wages.  Instead, they might give more attention to other attributes of the 
jobs, such as whether the worker and his/her family will reside in the community, and spend 
money in the community, or simply send the higher wages out of the community to their home 
base (Power 1996).  
 
Of course, a town’s retailers may be more concerned about their revenues rather than citizen’s 
utility, and initially think they would prefer having a town filled with higher paid workers. 
However, even in this case there are a couple of drawbacks to high wage jobs. First, in isolated 
rural labor markets, high paying mining jobs might compete away some less risk averse workers 
from their current retail employment. Retailers would then have to raise wages to retain existing 
workers or to draw other people into the work force. These higher wages then reduce firms’ 
profits. Second, as noted by Power (1996) not all these high wage workers reside in the 
community or spend their money in the community. For example, BLM asserts that 60 percent 
of Wyoming gas field workers are not local residents (BLM 2006).  Further, as has been 
repeatedly reported, significant amounts of the money received in these high wage mining jobs 
goes into illegal drugs such as methamphetamine, at a cost of $200-$300 a day (Farrell 2005; 
Fuller 2007). An unofficial motto among oil and gas workers appears to be “You’re wired or 
you’re fired” (Farrell 2005). Not only does this drug money not go into legal retail outlets, but the 
associated assaults and crime increase a town’s law enforcement costs, and drain local 
government budgets for expensive jail expansion, drug treatment programs, etc.   County 
planners and federal agencies need to consider the external pecuniary costs to the community 
of high risk jobs.  Fatal and nonfatal injuries also impact the contributions workers are able to 
make to their families and communities (Fuller 2007) and some of the risks in extractive 
industries are passed on to other sectors, especially through uninsured workers compensation 
funds and private medical insurance.    
 
In conclusion, community economic development strategies need to focus on the economic well 
being of its citizens and residents, not solely on blind pursuit of higher wage jobs. Giving up 
tourism jobs for mining jobs is unlikely to improve the well being or utility of the workers. The 
data confirm that higher wages, if they are in mining, can be hazardous to worker health.  
 
 
References 
 
Bureau of Labor Statistics. 2006. National Census of Fatal Occupational Injuries in 2005. USDL- 
06-1364. U.S. Department of Labor, Washington DC.  
 
Bureau of Labor Statistics. 2006. Workplace Injuries and Illnesses in 2005, USDL 06-1816, U.S. 
Department of Labor, Washington, DC. 
 
Bureau of Labor Statistics. 2007. B-11, Average Hourly and Weekly Earnings of Production and 
Nonsupervisory Workers on Private Nonfarm Payrolls by Major Industry Sector and Selected 
Industry Detail. ftp.bls.gov/pub/suppl/empsit.ceseeb11.txt.  Accessed April 20, 2007.  
 Western Economics Forum, Fall 2007 
  14
Bureau of Land Management. 2006. Draft Supplemental Environmental Impact Statement 
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Wyoming, Volume 1 of 2, December, Pinedale, WY. 
 
Catlett, C. 2007. The Dollars and Sense of Safety.  Main Street Montana. Spring, MT. 
 
Farrell, Patrick. 2005. Methamphetamine Fuels the West’s oil and gas boom. High Country 
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Fuller, A. 2007. Boomtown Blues:  How Natural Gas Changed the Way of Life in Sublette 
County. The New Yorker, February 7 38:44.   
 
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Unemployment in Regional Labor Markets: Using Structural Theories to Understand Local Jobless Rates in West Virginia.

Are High Wage Jobs Hazardous to Your Health? The Myth That Attracting Higher Paying Extractive Industry Jobs Is a Desirable Community Economic Development Strategy

Are High Wage Jobs Hazardous to Your Health? The Myth That Attracting Higher Paying Extractive Industry Jobs Is a Desirable Community Economic Development Strategy

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