The Employers' Costs of Workers' Compensation Insurance: Magnitudes and Determinants

Abstract

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 costs, and efficiency of workers’ compensation. The paper estimates cost equations for a variety of alternative specifications. The main finding is that costs tend to rise equal proportionally with benefits -- doubling benefits will double insurance costs. The results also indicate that state provision of workers’ compensation insurance 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’ compensation costs.