Work-Related Injuries and Incentives, Adequacy, and Optimality in Workers' CompensationPublic Deposited
The three empirical analyses in this dissertation study the effects of workers' compensation benefits on individual behavior and household consumption as well as the impacts of workplace injuries and illnesses on economic outcomes for affected workers. In Chapter 2, I study incentive effects of state workers' compensation programs, exploiting substantial cross-state variation in the generosity of workers' compensation benefits to estimate the relationship between benefit levels and the frequency of claims. Using a large data set of 25 matched March Current Population Surveys (CPS), my estimates of the reduced-form relationship between claims and benefits are appreciably smaller than those obtained by existing studies using similar methods. In addition, I find that controlling carefully for the influence of wages on claim propensities causes the estimated benefit elasticity to shrink dramatically, so that a 10 percent increase in benefits is associated with less than a 1 percent increase in claims. Chapter 3 evaluates the extent of consumption-smoothing provided by workers' compensation benefits when a worker is injured at work. I find a significant consumption-smoothing effect of workers' compensation: A 10 percent increase in benefit levels is found to offset the drop in household consumption upon injury by 2.5 to 4 percent. I also present a model that provides an explicit formula for optimal benefits. My calculations indicate that current benefit levels are higher than optimal: That is, the consumption-smoothing benefits of workers' compensation benefits are modestly outweighed by their distortionary effects on labor supply. Finally, Chapter 4 explores the impacts of work-related injuries and illnesses on labor market outcomes for older workers nearing retirement. I find that a workplace injury is associated with significant and persistent declines in earnings and labor supply for these workers. Incurring a work-related injury is found to substantially increase the probability of labor force exit and retirement in the year of injury onset. Results from fixed-effects regressions also indicate both short- and long-term declines in annual hours worked and earnings for workers with late-career injuries. Finally, I document evidence that the negative impacts of workplace injuries are larger, the more severely the injury impairs daily functioning.