The effects of workers’ compensation experience rating on workers’ absences and employment

What the paper says

This paper examines the effects of experience rating of workers’ compensation (WC) insurance on workers’ absences and employment. I exploit a French reform that increased the degree of experience rating assigned to medium-size firms, thereby strengthening their incentives to reduce WC benefit expenditures of their employees. The findings show that a higher degree of experience rating led to a significant reduction in absences due to work-related injuries or illnesses; the estimates imply an elasticity of a worker’s annual number of work-related absence days with respect to the share of WC benefit expenditures borne by the firm of −1.20, with an extensive-margin elasticity of −0.43. This reduction is not offset by an increase in nonwork-related absences, suggesting that this effect does not reflect a substitution toward filing claims under the nonwork-related insurance scheme. I find no evidence of adverse effects on employment. Instead, the results suggest that increasing the degree of experience rating significantly improved the employment of workers. • Experience rating creates incentives for firms to reduce workers’ compensation benefit payments. • A French reform increased the degree of experience rating, thereby strengthening these incentives. • Stronger incentives led to a substantial reduction in work-related absences taken by workers. • This reduction was not offset by an increase in nonwork-related absences. • Stronger incentives led to improvements in workers’ employment outcomes.