Economics Seminar - "Peer Health Shocks and Labor Supply"

I provide novel evidence on how workers respond to peer health shocks within high-risk occupations by leveraging two nested natural experiments within professional hockey and American football. First, I compare differences in labor supply between characteristically similar athletes who differ only in their exposure to a colleague who died of chronic traumatic encephalopathy (CTE) – a deadly neurological disease causally linked to continued workplace participation. Though the information about these deaths is widely publicized, I find that their occurrence differentially increases the probability for former teammates to retire. This effect is greater for those with longer periods spent as teammates and diminishes with time since they were last on the same team. Second, I leverage quasi-random differences in the monetary compensation that workers would forgo upon retiring at the time of this peer health shock. I show these retirements are highly responsive to opportunity costs – estimating that teams would have to increase worker compensation $1 million to prevent their exit. Remaining treated workers display a heightened sensitivity to health risks by exchanging salary for larger signing bonuses and shorter contracts in their subsequent employment negotiations. The finding that labor supply decisions are highly responsive to the health status of peers suggests that workers substantially underestimate utility loss from work-related health damages even in environments where such risks are highly publicized.