Compensating Wage Differentials and the Health Cost of Job Strain

The paper presented in this Mannheim Applied Seminar estimates the trade-off between earnings and healthcare utilization resulting from strenuous working conditions, using rich administrative data from Upper Austria that link employment histories with healthcare claims over two decades. To address selection bias, the authors leverage mass layoffs as quasi-exogenous shocks that push workers out of strenuous jobs. By comparing workers with varying opportunities to re-enter strenuous employment, the authors can isolate the causal impact of job strain on earnings and health outcomes. The paper finds that a 1% increase in wages due to strenuous work is associated with a 0.5% rise in healthcare expenditures. The paper’s findings provide the first unified causal evidence of compensating wage differentials and their hidden health costs, showing that higher pay in strenuous jobs comes at a measurable and persistent cost to worker health.