Benefit Increases in Workers Compensation

Abstract

It is increasingly apparent that changing levels of benefits in social insurance and welfare programs have profound impacts on the behavior of not only potential recipients but also on those who pay for such programs. Benefit increases in Social Security, unemployment insurance, AFDC, rehabilitation programs, etc. change not only labor supply, but can also affect savings, the structure of wages and fringe benefits (indeed, nearly all aspects of labor contracts), and risk-taking behavior both with respect to unemployment and occupational injuries. Recent empirical research into the Workers Compensation system indicates patterns of recipient responses similar to those identified in the much larger literature on Social Security and unemployment insurance: claims frequency and duration varies directly with Workers Compensation benefits [2; 3; 4; 5; 6; 7; 8; 9; 17; 21; 22], and wages decrease to compensate for higher benefits [1; 2; 13; 14; 15]. Yet despite the pivotal role that benefits play in all of these programs, virtually nothing is known about the political economy of benefit changes.' In this paper we analyze the empirical determinants of changes in benefit levels in Workers Compensation. The Workers Compensation program provides a nearly ideal setting for analyzing changes in benefits: in terms of its scope and structure the program shares much in common with the unemployment insurance program and disability insurance in the social security system yet each state establishes its own benefits without the restriction of any explicit Federal Guidelines. Hence we observe not only temporal variation in the benefit structure, but interstate variation as well.2 The Workers Compensation laws are state laws which require employers to provide cash benefits, medical care and rehabilitation services to their employees for injury or illness arising out of or in the course of employment. Provision of this coverage is mandatory in forty-seven