The Effect of an Increase in Worker's Compensation Benefits on the Duration and Frequency of Benefit Receipt

Abstract

We present quasi-experimental estimates of the effect of changes in workers' compensation benefits on benefit duration and application frequency, using administrative data for California. Our design exploits two increases in temporary disability benefits occurring during the mid-1990s. We find consistent increases in the duration among injured workers whose benefits were affected by the schedule changes, and some evidence indicating that the likelihood of filing for benefits conditional on being injured is responsive to benefit levels. Finally, we evaluate whether the frequency effect on applying for indemnity benefits introduces a sample selection bias into standard quasi-experimental estimates of duration benefit elasticities. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Buying Time: The Insurance Value and Distortionary Effects of Workers' Compensation

“…Given this result, an increase in b t decreases the hazard of leaving WC and lengthens claims. This prediction has been confirmed in previous work finding that more generous WC benefits lead to longer claims (e.g., Krueger 1990;Butler and Worrall 1985;Meyer, Viscusi and Durbin 1995;Neuhauser and Raphael 2004). On the other hand, increasing the wage during any one period yields:…”

“…Scaling the coefficients in table 2 by these amounts, I obtain a liquidity elasticity of 0.28-0.30 and a moral hazard elasticity of approximately 0.14-0.22. This implies an overall elasticity in the range of 0.4-0.5, which is consistent with other elasticities in the literature (Meyer, Viscusi and Durbin 1995;Neuhauser and Raphael 2004). Based on my estimates, the liquidity effect amounts to approximately 50-60 percent of the total response to a change in benefits, with the liquidity (2) and (3) show the coefficients from one regression where the RP term is additionally interacted with indicators for earnings above/below the median wage.…”

“…These estimates imply an overall duration-benefit elasticity of approximately 0.4-0.5, which is similar to estimates in the extant literature (Meyer, Viscusi and Durbin 1995;Neuhauser and Raphael 2004). Based on these estimates, the liquidity effect accounts for 50-60 percent of the overall duration response to a change in benefits.…”

“…Injured workers can experience substantial consumption losses after a disabling event on the job (Galizzi and Zagorsky 2009;Bronchetti 2012), meaning that WC could play an important role in smoothing consumption for injured workers. On the other hand, WC benefits lead workers to extend their absences from work, and could increase the incidence of on-the-job injuries (e.g., Butler and Worrall 1985;Krueger 1990a,b;Meyer, Viscusi and Durbin 1995;Neuhauser and Raphael 2004;Bronchetti and McInerney 2011). This literature has generally been viewed to provide evidence of moral hazard, but the overall benefit-duration relationship could reflect both moral hazard via a substitution effect, and a potential response to the income effect (Baily 1978;Nyman 2003).…”

Piece rates and workplace injury: Does survey evidence support Adam Smith?

“…The two 18 primary social regulations of concern are cross-country differences in sick pay legislation and in workplace health and safety regulations. While more generous sick pay has been routinely associated with greater absence (see, for example, Neuhauser and Raphael 2004), its relationship with actual injury and health is far less clear. This latter relationship relies upon workers taking greater risks at work (engaging in moral hazard) knowing that their time away from work due to injury or poor health will be compensated.…”