The Employers' cost of Workers' Conpensation Insurance: Magnitudes, Determinants, and Public Policy
Alan B. Krueger
John F. Burton, Jr.
This paper presents estimates of the average cost of the workers'
compensation insurance program for a homogeneous group of employers by state.
These estimates are of interest because they reflect the operation, direct
nominal costs, and efficiency of workers' compensation. The paper estimates
cost equations for a variety of alternative specifications. The main finding
is that when cost equations are estimated by ordinary least squares there is a
unit elasticity of costs with respect to benefits, but instrumental variable
estimates of the effect of benefits yield a greater than unit elasticity. The
results also indicate that the presence of a state insurance fund is
associated with higher average costs to employers, all else equal. Finally,
we explore the impact that the minimum standards recommended by the National
Commission on State Workmen's Compensation Laws would have on workers'
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