Moral Hazard in Workers' Compensation

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Abstract

This paper uses longitudinal CPS data on a large sample of workers to
estimate the determinants of participation in state workers’ compensation
programs in the United States. The principal finding is that higher workers’
compensation benefits are associated with greater participation in the
workers’ compensation program, after allowing for worker characteristics,
state dummy variables and other aspects of the workers’ compensation law.
Moreover, this result holds for both manufacturing and nonmanufacturing
workers. Workers’ compensation benefits, however, have an insignificant
effect on program participation for the sample of women. Overall, a 10%
increase in benefits is associated with a 7.1% increase in program
participation. In addition, the results show that the waiting period that is
required before benefit payments begin has a substantial negative effect on
participation in the workers’ compensation program. Finally, with the
exception of unemployment insurance, there is little evidence that workers are
comparatively more likely to participate in other social insurance programs
while they are collecting workers’ compensation benefits.

Year of Publication
1988
Number
239
Date Published
09/1988
Publication Language
eng
Citation Key
8192
URL
Working Papers