Summary
The costs of workers’ compensation for employers are examined along several dimensions. The costs as a percent as a percent of payroll increased from 0.91 percent in 1946 to 1.13 percent in 1970. Costs as a percent of payroll vary across industries and among states.
For most employers, costs largely consist of insurance premiums. For an employer with limited payroll, the premium rate is largely based on benefits previously paid by all employers in the state who are in the same insurance classification. For firms with substantial payroll, a second-level of experience rating increases or decreases the insurance rate depending on a firm’s own previous record of benefit payments. A self-insuring employer is also experience rated to the extant the firm does not buy insurance to cover excessive losses. A firm that is subject to firm-level experience rating can reduce workers’ compensations costs by improving safety and thus reducing claims. However, firm-level experience rating may encourage the firm to resist payment of legitimate claims.
Employers are adversely affected by workplace injuries for consequences in additional to higher workers’ compensation premiums, such as damage to property or loss of output. Employees also suffer losses to the extent they do not receive adequate workers’ compensation benefits, including monetary and psychic losses.
Citation:
C. Arthur Williams and Peter S. Barth, “Cost Levels and Allocation,” Chapter 17 in Compendium on Workmen’s Compensation (Washington, DC: National Commission on State Workmen’s Compensation Laws, 1973.)