The theory of compensating differentials asserts that night shift workers should receive compensating wage differentials due to\nundesirable work conditions. In weak local economies, workers may have difficulty finding jobs; thus, these workers might be\nmore likely to accept night shift work and be less concerned with the size of the compensating differential for night shifts. Using\nCPS data from 2001, this paper employs maximum likelihood estimation of an endogenous switching regression model to analyze\nwages of day and night shift workers and shift choice. The findings indicate the presence of selection bias, thus emphasizing the\nimportance of correcting for self-selection into night shifts. The average of the estimated wage differentials for night shift work is\nnegative for the overall sample, with differentials varying by worker characteristics. The shift differential is found to be a statistically\nsignificant predictor of shift choice, indicating that shift premiums play an important role in motivating individuals to select night\nshift work. Using two measures of local economic conditions and a new method of analyzing interaction effects in the context of an\nendogenous switching regression model, this paper finds limited evidence that weak local economic conditions lessen the impact\nof compensating differentials on shift choice.
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