Workers’ Compensation and State Employment Growth.

Workers’ compensation reforms have been on the table in virtually every state over the last several years, and many states have launched comprehensive reforms. At least nine states undertook major reforms of their workers’ compensation systems in 2004 alone, and the reforms were driven largely by claims that higher workers’ compensation costs are driving away businesses and the employment that comes with them. This paper examines the relationship between workers’ compensation costs, as proxied by benefits/earnings, and employment across U.S. states and the District of Columbia from 1976 to 2000. Workers’ compensation costs are found to have a statistically significant negative impact on employment and wages, but the elasticities are very small, suggesting that workers’ compensation is not a likely cause of jobs woes in most states. Unemployment insurance appears to have an effect of similar magnitude. Medical cost inflation is found to be a significant factor in explaining movements in workers’ compensation costs over time. [ABSTRACT FROM AUTHOR]