Promoting Safety through Workers' Compensation: The Efficacy and Net Wage Costs of Injury Insurance
Volume: Volume 20, No. 4
Issue: Winter 1989
Pages: pp. 499-515
Authors: Michael J. Moore and W. Kip Viscusi
Title: Promoting Safety through Workers' Compensation: The Efficacy and Net Wage Costs of Injury Insurance
Abstract: 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.
JEL Classification
Workmen's Compensation and Vocational Rehabilitation (8222)
Factory Act and Safety Legislation (8223)