New Estimates of the Labor Market Effects of Workers' Compensation Insurance

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. I. IntroductionThe workers' compensation laws are one of the earliest examples of a government mandated employer provided benefit. Under a combination of federal and state laws, employers have a statutory obligation to provide medical and income benefits to injured workers. In most states, employers are required to purchase insurance to meet their financial responsibility. Recently, there has been growing legislative support for expanding the scope of mandated benefits to include items such as parental leave and health insurance. The political attractiveness of mandated benefits is that they do not require an increase in taxes, and that they represent a political compromise between liberals and conservatives over how best to carry out social policy [22].The labor market consequences of mandated benefits are potentially large and not well documented in the literature. The fundamental issue is to what extent an increase in benefits, which represents an increase in employer costs, is offset by lower wages. Previous studies that have attempted to measure such compensating differentials have reached dissimilar conclusions over the size and even the direction of the effects.' The findings from studies examining the effect of workers' compensation insurance on wages tend to be more consistent, often finding a negative effect, but are also characterized by considerable diversity. Thus, past research does not provide enough information to make an informed policy decision and continued research in this area is clearly warranted. The purpose of this paper is to provide new evidence on the effect of workers' compensation benefits on the labor market. In particular, the paper examines the tradeoff between wages and workers' compensation benefits and the relationship between workers' compensation benefits and job safety. The primary contribution of this paper is to identify two previously overlooked *The authors wish to thank Michael Grossman, Theodore Joyce and seminar participants at the City University of New York Graduate Center for helpful comments. 1. For a general review of the compensating wage differential literature see Smith [20] and Brown [2]. Ehrenberg and Smith [11] review studies of compensating wage differentials for pensions.

An Examination of Adverse Selection in the Public Provision of Insurance

“…20 The other four rationales Greene (1976) proposes are: the convenience motive, the need for compulsion, the motive of greater efficiency and the need to achieve collateral social purposes. 21 Carroll and Kaestner (1995); (Kwon and Grace (1996); Kaestner and Carroll (1997); Harrington and Danzon (2001) and Danzon and Harrington (2001). 22 Danzon and Harrington (2001).…”

Incentive Effects of Workers’ Compensation: A Survey

“…and Walzer use the rate paid for we liability expressed in dollars per $100 of payroll, Kaestner and Carroll (1997) use a measure of WC benefits that include medical benefits). Most authors (except Butler, 1983) have used micro data at the individual level, and some of them have focused on workers in risky jobs (e.g., Gruber and Krueger, 1991, use data from a national sample of individuals in five high-risk jobs: carpenters, truck drivers, nonprofessional hospital employees, gasoline station employees, and plumbers.)…”

Rate Regulation, Safety Incentives, and Loss Growth in Workers' Compensation Insurance

“…As we explained in the introduction, Kaestner and Carroll (1997) and Barkume and Ruser (1998) provide mixed evidence of whether the statutory form of regulation is related to levels of workers' compensation injuries and costs. Several studies examine the relationship between the type of workers' compensation insurance regulation (prior approval, loss-cost systems, competitive rating) and premium levels and premium-cost margins to test hypotheses of industry versus consumer capture of the regulatory process (e.g., Appel, McMurray, and Mulvaney 1992;Klein et al 1993;Carroll and Kaestner 1995;Schmidle 1995).…”

“…Kaestner and Carroll (1997) provide evidence of larger (one-digit standard industrial classification) injury rates in states with some form of statutory rate ''deregulation'' during 1983-88, arguing that regulation pushes up prices (see Carroll and Kaestner 1995) and therefore encourages loss control. This explanation is inconsistent with evidence of rate suppression during the 1980s (e.g., see fig.…”