Macroeconomic Conditions at Entry and Injury Risk in the Workplace

• DOI: http://doi.org/10.1111/sjoe.12285
• Date: 01 April 2019
• Author: Tiziano Razzolini,Roberto Leombruni,Francesco Serti
• Published date: 01 April 2019

Scand. J. of Economics 121(2), 783–807, 2019

DOI: 10.1111/sjoe.12285

Macroeconomic Conditions at Entry and

Injury Risk in the Workplace*

Roberto Leombruni

University of Turin, 10136 Torino, Italy

roberto.leombruni@unito.it

Tiziano Razzolini

University of Siena, 53100 Siena, Italy

tiziano.razzolini@unisi.it

Francesco Serti†

IMT School of Advanced Studies, 55100 Lucca, Italy

francesco.serti@gmail.com

Abstract

Using a unique dataset from Italy, we show that the local unemployment rate at entry has a

persistent positive effecton severe and non-severe workplace injuries of young workers. Entrants

during recessions, despite receiving marginally higher entry wages,also experience slower wage

growth. The observed pattern in the differences betweensevere and non-severe injuries indicates

that entrants during recessions might under-report non-severe workplace injuries. Our findings

suggest that workers entering during recessions are persistently lockedinto low-quality jobs and

that the mix of hazardous tasks endogenously adjusts to the business cycle.

Keywords: Business cycle; work-related accidents; young workers

JEL classification:J28; J60; J81

I. Introduction

The macroeconomic conditions encountered by workers entering the labor

market for the first time might persistently affect their future labor market

outcomes. Existing evidence (Oyer, 2006; Genda et al., 2010; Kahn, 2010;

Kwon etal., 2010; Oreopoulos et al., 2012; Br unner and Kuhn, 2014) mainly

focuses on the wage prospects of young entrants. Little attention has been

paid to other non-pecuniary determinants of job quality, such as the level of

*Financial support from MINECO/FEDER (ECO2015-70540-P) and the Compagnia di San

Paolo(TO-Call3-20120119-The Popart Network) is gratefully acknowledged.Wethank Antonella

Bena, Giuseppe Bertola,Alber to Dalmazzo, Massimiliano Giraudo, Climent Quintana Domeque,

Marcello Sartarelli, Jan C. van Ours, Francesco Turino, and Anzelika Zaiceva.

†Also affiliated with the University ofAlicante.

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The editors of The Scandinavian Journal of Economics 2017.

784 Macroeconomic conditions at entry and injury risk in the workplace

workplace safety. These job attributes can represent an important channel

of adjustment to negative shocks, particularly in contexts where wages are

rigid and regulated by strict institutional rules.

In this paper, we study the impact of unemployment at entry on

workplace safety for a sample of young Italian-born, low- and medium-

skilled men who began their first employment between 1994 and 2003.

We use a unique dataset that combines work histories taken from Italian

administrative data, provided by the Work Histories Italian Panel (WHIP),

with individual work-related injuries from Italy’s National Institute for

Insurance against Accidents at Work (INAIL).

Our main finding is that negative labor market conditions at entry are

associated with a persistent increase in work-related accidents. This effect

cannot simply be attributed to a lower accumulation of experience and/or

tenure, as we find no significant effect of initial conditions on time worked

(conditional or unconditional on being employed) and we find very small

negative effects on tenure only in the long run. Our results are robust to

restricting the analyses to severe injuries, which, due to their consequences

and immediate care (IC) needs, are not subject to reporting bias (Boone

and van Ours, 2006; Boone et al., 2011), and to using a measure of the

risk imposed by the working environment as a dependent variable, which

is not affected by either workers’ behavior in the job or variations in firms’

injury prevention investments over the business cycle.

An analysis based only on earnings could be misleading in labor markets

such as the Italian market, which are characterized by downward wage

rigidity and a large shadow economy (approximately 23 percent of official

Italian GDP, according to Orsi et al., 2014). In these economies, recessions

can push less-productive workers (in relative terms) into the underground

economy, leaving only better-paid workers in the formal sector. Indeed, by

consulting the Survey on Household Income and Wealth (SHIW), we find

that the likelihood of young workers beginning their careers in informal

(low-paid) jobs increases significantly during a recession. We show that

this is a selection mechanism that could explain why, in the administrative

dataset, we observe that workers who entered during a recession receive

slightly higher average entry wages. To the extent that working conditions

and wages are relatively worse in the underground economy, our results

should provide a lower-bound estimate of the impact of starting conditions

on the time spent by new workers in low-quality jobs offering relatively

fewer career prospects.

Using a canonical graphical analysis, we show that our findings are

consistent with a scenario in which entrants during a recession become

relatively more willing to bear risk, and firms react by offering wage–job

safety bundles characterized by lower compensation for risk. In the presence

of downward wage rigidity, these endogenous responses to recessions are

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The editors of The Scandinavian Journal of Economics 2017.