Workers' Compensation: Wage Effects, Benefit Inadequacies, and the Value of Health Losses

Abstract

Using the 1977 Quality of Employment Survey in conjunction with BLS risk series and state workers' compensation benefit formulas, the authors assess the labor market implications of workers' compensation. Higher levels of workers' compensation benefits reduce wage levels, and controlling for workers' compensation raises estimates of compensating differentials for risk. The rate of trade-off between wages and workers' compensation suggests that benefit levels provide suboptimal levels of income insurance, abstracting from moral hazard considerations. The value of nonmonetary losses from job injuries (including pain and suffering and nonwork disability) is estimated to be $17,000-$26,000.