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Workers' Compensation: Benefits, Costs and Safety Under Alternative Insurance Arrangements. (Book Reviews).

Workers' Compensation: Benefits, Costs and Safety Under Alternative Insurance Arrangements, by Terry Thomason, Timothy P. Schmidle, and John F. Burton Jr., 2001, Kalamazoo, Michigan: W. E. Upjohn Institute for Employment Research

This book succeeds on many fronts and is a must-buy for those working in social insurance, human resources, or public policy. The careful construction of a cross-sectional time series on the costs of workers' compensation alone would be a major contribution and worth the price of the book, facilitating research on the changing structure of workers' compensation programs. However, the book actually uses the series to examine the adequacy, equity, and efficiency of the workers' compensation system. The authors update previous studies, Krueger and Burton (1990) and Schmidle (1994), for example, and they price both the essential recommendations of the National Commission on State Workmen's Compensation Laws and the Model Act of the Council of State Governments. They consider public vs. private provision and the injury prevention role of workers' compensation programs.

Those familiar with the research programs of the three authors, all experienced scholars who have made many contributions to social insurance research, will see the influence each has had on the final product. Although each is interested in theory and econometrics, the authors go to great pains to make the book accessible to the general reader. They explain technical points in good English and clearly spell out the public policy aspects of the research.

After a brief overview (Chapter 1), the authors present an especially well-written Chapter 2 on workers' compensation program developments since the 1960s. This will provide a quick review for those who have followed workers' compensation programs closely and a strong basis for the research to come for those unfamiliar with workers' compensation research. Chapter 3 provides the data foundation for the multivariate statistical research that follows in Chapters 4, 5, 7, and 8 (Chapter 6 sets out the theory and reviews the effect of rate regulation).

The authors provide detailed information on the construction of their cross-sectional time series. They are able to build a consistent series for workers' compensation class codes, which account for approximately 75 percent of premium. This is careful and laborious research, and it is essential for empirical work. Chapter 4 is devoted to basic cost regressions and the ultimate issue of the trade off between adequacy and affordability. The authors found that the simple imposition of the Model Act could increase the average costs of workers' compensation by 60 to 75 percent! Chapter 5 takes up system efficiency and the public vs. private provision issue. This is an area fraught with measurement problems (hidden costs in the public system, for example) and small sample sizes, but the authors do a good job with the data that they have. Chapter 7 examines the impact of rate regulation on workers' compensation costs. The major findings of the chapter are that partial deregulation is associated with higher employer cost, and more extensive deregulation with lower employer cost. Chapter 8 considers the impact of insurance arrangements on workplace safety. The authors find that exclusive state funds are associated with higher accident rates, but competitive state funds correspond to lower accident rates. Chapter 9 sets out the findings and policy implications.

Some scholars may have minor quibbles with this book: We probably do not observe real employer costs (employers engage in wage trade offs with employees); we do not have 100 percent compensation class code compatibility or coverage; we do not observe insurance prices exactly (or the timing of cash flows at the firm level), which can make regulation studies problematic. The authors are aware of these pitfalls and make the best use of the data set they have constructed. That set is the best constructed to date, and this book will be a contender for several book of the year awards.


Krueger, A. B., and J. F. Burton Jr., 1990, The Employers' Cost of Workers' Compensation Insurance: Magnitudes, Determinants and Public Policy, Review of Economics and Statistics 72(2): 228-240.

Schmidle, T. P., 1994, The Impact of Insurance Pricing on the Employers' Cost of Workers' Compensation Insurance, Ph.D. dissertation, Cornell University.
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Author:Worrall, John D.
Publication:Journal of Risk and Insurance
Article Type:Book Review
Date:Mar 1, 2002
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