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Worker's compensation and state employment growth

  • Kelly Edmiston

Workers’ Compensation reforms have been on the table in virtually every state over the last several years, and many states have launched comprehensive reforms. At least nine states undertook major reforms of their workers’ compensation systems in 2004 alone, and the reforms were driven largely by claims that higher workers’ compensation costs are driving away businesses and the employment that comes with them. Given the nearly universal assertion by promoters of workers’ compensation reforms that high cost states lose jobs to relatively low cost states, one would expect that substantial research exists to back up the claims. In fact, however, although a voluminous literature exists that explores behavioral aspects of workers’ compensation insurance, including effects on injury rates, number of claims, and duration of claims, there has been no systematic study of the relationship between workers’ compensation costs and economic growth. This paper sets out to help fill the intellectual void by examining the relationship between workers’ compensation costs and employment growth across U.S. states from 1976 – 2000. Workers’ compensation costs are found to have a statistically significant negative impact on employment and wages, but the elasticities are very small, suggesting that workers’ compensation costs are not a likely cause of jobs woes in most states.

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Paper provided by Federal Reserve Bank of Kansas City in its series Community Affairs Research Working Paper with number 2005-04.

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Date of creation: 2005
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Handle: RePEc:fip:fedkcw:2005-04
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