Compensation for Permanent Impairment and the Duration of Work Absence: Evidence from Four Natural Experiments

A natural experiment approach is used to examine the effect of legislative changes in New York Workers' Compensation benefits on the duration of work absence. Using data from before and after the legislative changes, a treatment group is compared to a control group unaffected by the changes. Duration/benefit elasticity estimates for minor permanent impairments are found to be similar to existing estimates for temporary impairments but are much smaller than estimates for severe permanent impairments. When benefits available after a work absence were increased but the benefits during work absence were unchanged, duration of minor impairment claims was unchanged, but workers with severe impairments reduced the length of their work absence. This finding, together with the elasticity estimates, implies that a policy that constrained weeks of benefits but increased the value of benefits after the work absence relative to those during the absence could reduce the overall duration of work absence.