Incentive Effects of Workers' Compensation

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Abstract
Economic theory and evidence indicate that workers, employers, and healthcare personnel respond to the incentives built into state workers' compensation systems. Although empirical studies cannot provide precise estimates of the quantitative effects resulting from specific policy changes, research is useful in evaluating the qualitative effects of alternative policies. Studies show that workers' compensation claims are higher the more generous the level of benefits, the shorter the waiting period, and the more readily available is information on benefits to workers. States that decrease real benefit levels and lengthen the period required before workers are compensated for lost earnings can constrain future growth in workers' compensation costs, while continuing to provide partial compensation for workers with the most serious injuries. The most difficult problem facing policymakers is to design and implement reforms that take into account what are often the incompatible incentives of workers, employers, and medical care providers.

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