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Workers’ compensation insurance, which provides no-fault coverage for work-related injuries, is mandatory in nearly all states. We use administrative data from a unique market without a coverage mandate to estimate the demand for workers’ compensation insurance, leveraging regulatory premium updates for identification. We find that a 1 percent increase in premiums leads to approximately a 0.3 percent decline in coverage. Drawing upon these estimates and data on costs, we examine potential justifications for government intervention to increase coverage. This analysis suggests that several forms of market failure—such as adverse selection, market power, and externalities—may not justify a mandate in this setting. (JEL G22, G52, J28, K13, K31)
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This content will become publicly available on July 1, 2025
The Impact of Benefit Generosity on Workers’ Compensation Claims: Evidence and Implications
Leveraging unique administrative data and a sharp increase in benefit generosity in a difference-in-differences research design, we estimate the impact of workers’ compensation wage replacement benefits on individual behavior and program costs. We find that increased benefit generosity leads to longer income benefit durations and increased medical spending. Responses along these two margins are equally important drivers of increased program costs, collectively increasing program costs 1.4 times the mechanical increase in costs. Using these estimates and an estimate of the consumption drop among injured workers, our welfare calibrations suggest that a marginal increase in benefit generosity would not improve welfare. (JEL D91, I11, J28, J31)
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- Award ID(s):
- 1845190
- PAR ID:
- 10578787
- Publisher / Repository:
- American Economic Association
- Date Published:
- Journal Name:
- American Economic Journal: Applied Economics
- Volume:
- 16
- Issue:
- 3
- ISSN:
- 1945-7782
- Page Range / eLocation ID:
- 436 to 481
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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