Three reasons for compensating wage differentials are worth noting:

• Risk and Hazardous Conditions: Jobs that are riskier, more dangerous, and have a greater likelihood of injury, typically pay higher wages. For example, coal miners, deep sea divers, and security guards are likely to be paid higher wages than similar jobs due to the hazardous nature of their duties.


• Education and Skill: Jobs that require more education, skill, and training also tend to pay higher wages. Higher wages compensate for greater productivity and provide returns on investment in education and training.


• Location: Jobs that are at undesirable, more distant, or hard to reach locations also pay higher wages. Firms in cities that have high living costs, inhospitable climates, high crime rates, or other "disamenities" find it necessary to offer higher wages to attract workers.

• First, they provide incentives for people to undertake less desirable work. If society decides that resources need to be allocated to production that involves undesirable work, then compensating wage differentials are necessary. Without extra wages, this work is not done.


• Second, they provide incentives for employers to reduce the undesirable nature of the work. If otherwise identical firms have different working conditions, then one is forced to pay higher wages to attract workers. Higher labor cost encourages employers to improve working conditions to remain competitive.

A key function of OSHA is to reduce the amount of risk that workers face. However, some workers undertake more risky jobs to receive higher compensating wages. If the amount of risk is reduced, then so too are the wages (and presumably the welfare) of these workers. By attempting to help workers, OSHA can actually make them worse off.

Of course, if the labor market is not competitive and does not have well-informed workers, then job-related risks do not generate compensating wage differentials. Such is the case for jobs that use new and untested technologies. For example, the risks of coal mining and deep sea diving are well known and generate relatively high compensating wages. However, the risks of working for extended periods with computer video screens or recently developed chemicals are not yet known.