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Workers' Compensation and Injury Duration: Evidence from a Natural Experiment

  • Bruce D. Meyer
  • W. Kip Viscusi
  • David L. Durbin

This paper examines the effect of workers' compensation on the time until an injured worker returns to work. Two large increases in the maximum weekly benefit amount in Kentucky am Michigan are examined. The increases raised the benefit amount for high earnings individuals by over sixty percent, while low earnings individuals, who did not earn enough to be eligible for the old maximum, did not experience a change in their incentives. A comparison of the behavior of pecp1e injured the year before the benefit increases to those injured the year after provides an estimate of the effect of higher benefits on injury duration. This use of a "natural experiment" allows us to separate the effect of the level of the benefits from the effect of previous earnings, which is a common difficulty in the analysis of social insurance programs. The analysis uses individual records from a large number of insurance companies. Time out of work increases dramatically for those groups eligible for the higher benefits, while those whose benefits do not change do not experience a change in duration. The estimates suggest large moral hazard effects of higher benefits, with the estimated elasticity of spell duration with respect to benefits of approximately .3 to .4.

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File URL: http://www.nber.org/papers/w3494.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3494.

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Date of creation: Oct 1990
Date of revision:
Publication status: published as American Economic Review, 85, June 1995, pp 322-340.
Handle: RePEc:nbr:nberwo:3494
Note: LS
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  1. Bruce D. Meyer, 1989. "A Quasi-Experimental Approach to the Effects of Unemployment Insurance," NBER Working Papers 3159, National Bureau of Economic Research, Inc.
  2. Ronald G. Ehrenberg, 1985. "Workers' Compensation, Wages, and the Risk of Injury," NBER Working Papers 1538, National Bureau of Economic Research, Inc.
  3. Alan B. Krueger, 1990. "Workers' Compensation Insurance and the Duration of Workplace Injuries," NBER Working Papers 3253, National Bureau of Economic Research, Inc.
  4. 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.
  5. Krueger, Alan B., 1990. "Incentive effects of workers' compensation insurance," Journal of Public Economics, Elsevier, vol. 41(1), pages 73-99, February.
  6. Butler, Richard J & Worrall, John D, 1985. "Work Injury Compensation and the Duration of Nonwork Spells," Economic Journal, Royal Economic Society, vol. 95(379), pages 714-24, September.
  7. Finis Welch, 1977. "What have we learned from empirical studies of unemployment insurance?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 451-461, July.
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