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The Employers' cost of Workers' Compensation Insurance: Magnitudes, Determinants, and Public Policy

  • Alan B. Krueger
  • John F. Burton, Jr.

This paper presents estimates of the average cost of the workers' compensation insurance program for a homogeneous group of employers by state. These estimates are of interest because they reflect the operation, direct nominal costs, and efficiency of workers' compensation. The paper estimates cost equations for a variety of alternative specifications. The main finding is that when cost equations are estimated by ordinary least squares there is a unit elasticity of costs with respect to benefits, but instrumental variable estimates of the effect of benefits yield a greater than unit elasticity. The results also indicate that the presence of a state insurance fund is associated with higher average costs to employers, all else equal. Finally, we explore the impact that the minimum standards recommended by the National Commission on State Workmen's Compensation Laws would have on workers' compensation costs.

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File URL: http://www.nber.org/papers/w3029.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3029.

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Date of creation: Jul 1989
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Publication status: published as The Review of Economics and Statistics, Volume 72, Number 2, May 1990, pp. 228-240.
Handle: RePEc:nbr:nberwo:3029
Note: LS
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  1. J. A. Hausman & W. E. Taylor, 1980. "Panel Data and Unobservable Individual Effects," Working papers 255, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. H. Allan Hunt & Alan B. Krueger & John F. Burton Jr., 1988. "The Impact of Open competition in Michigan on the Employers' costs of Workers' Compensation," Book chapters authored by Upjohn Institute researchers, in: Workers' Compensation Insurance Pricing: Current Programs and Proposed Reform, pages 109-144 W.E. Upjohn Institute for Employment Research.
  3. Butler, Richard J & Worrall, John D, 1983. "Workers' Compensation: Benefit and Injury Claims Rates in the Seventies," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 580-89, November.
  4. Ronald G. Ehrenberg, 1985. "Workers' Compensation, Wages, and the Risk of Injury," NBER Working Papers 1538, National Bureau of Economic Research, Inc.
  5. Hamermesh, Daniel S & Wolfe, John R, 1990. "Compensating Wage Differentials and the Duration of Wage Loss," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S175-97, January.
  6. Breusch, Trevor S & Mizon, Grayham E & Schmidt, Peter, 1989. "Efficient Estimation Using Panel Data," Econometrica, Econometric Society, vol. 57(3), pages 695-700, May.
  7. Viscusi, W Kip & Moore, Michael J, 1987. "Workers' Compensation: Wage Effects, Benefit Inadequacies, and the Value of Health Losses," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 249-61, May.
  8. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-94, September.
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