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Promoting Safety through Workers' Compensation: The Efficacy and Net Wage Costs of Injury Insurance


  • Michael J. Moore
  • W. Kip Viscusi


This article explores the effects of workers' compensation on fatality rates and wages using the 1982 Panel Study of Income Dynamics and the new occupational fatality data issued by the National Institute for Occupational Safety and Health. The fatality rate depends upon the workers' compensation benefit variables in a manner that suggest that the safety incentive effects of higher insurance premiums offset any moral hazard effect. The estimates imply that in the absence of workers' compensation, fatality rates would increase by over 20%. Premium levels substantially overstate the cost of workers' compensation, due primarily to a direct wage offset from higher benefits. An indirect wage offset resulting from the decrease in risk caused by workers' compensation augments the direct wage effects. The indirect offset is relatively small, equalling about 10% of the total.

Suggested Citation

  • Michael J. Moore & W. Kip Viscusi, 1989. "Promoting Safety through Workers' Compensation: The Efficacy and Net Wage Costs of Injury Insurance," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 499-515, Winter.
  • Handle: RePEc:rje:randje:v:20:y:1989:i:winter:p:499-515

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    References listed on IDEAS

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    Cited by:

    1. G. Dionne & P. Lanoie, 2002. "How to Make a Public Choice about the Value of a Statistical Life : The Case of Road Safety," THEMA Working Papers 2002-14, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. Pascale Lengagne, 2016. "Experience Rating and Work-Related Health and Safety," Journal of Labor Research, Springer, vol. 37(1), pages 69-97, March.
    3. W. Kip Viscusi, 1991. "Product and Occupational Liability," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 71-91, Summer.
    4. Butler, Richard J. & Hartwig, Robert P. & Gardner, Harold, 1997. "HMOs, moral hazard and cost shifting in workers' compensation," Journal of Health Economics, Elsevier, vol. 16(2), pages 191-206, April.
    5. Pascale Lengagne & Anissa Afrite, 2015. "Experience Rating, Incidence of Musculoskeletal Disorders and Related Absences.Results from a Natural Experiment," Working Papers DT69, IRDES institut for research and information in health economics, revised Jul 2015.
    6. Kelly D. Edmiston, 2006. "Workers' Compensation and State Employment Growth," Journal of Regional Science, Wiley Blackwell, vol. 46(1), pages 121-145.
    7. Kaestner, Robert & Grossman, Michael, 1998. "The effect of drug use on workplace accidents," Labour Economics, Elsevier, vol. 5(3), pages 267-294, September.
    8. John Leeth & John Ruser, 2006. "Safety segregation: The importance of gender, race, and ethnicity on workplace risk," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 4(2), pages 123-152, August.
    9. Vikström, Johan, 2009. "The effect of employer incentives in social insurance on individual wages," Working Paper Series 2009:13, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    10. Krueger, Alan B. & Meyer, Bruce D., 2002. "Labor supply effects of social insurance," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 33, pages 2327-2392 Elsevier.

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