Accident rates, workers' compensation, and safety regulations

The relationship between workers' compensation and workplace injury rate has long been of interest in both theoretical and empirical studies. This study is another attempt to explore this issue. The theoretical model assumes that the firm is competing in competitive labor and product markets, taking wages and compensation benefits as exogenously determined variables. A Stackelberg-type two stage-game setup is utilized, based on an assumption of imperfect information between the firm and the workers. One of the major findings is that, in a Stackelberg equilibrium, the firm's incentive to invest in safety declines for non-fatal injuries with an increase in workers' compensation in the absence of safety regulations from outside. Workers' safety incentives also decline, given the same change in compensation. The model also confirms that more resources will be devoted to safety in a workers' compensation system with experience-rated premiums than in one with flat-rated-premiums.; The empirical models are designed to deal with the count data on different types of injuries by severity. Both firm characteristics and safety enforcement variables are used in the negative binomial and multinomial regressions. This study is the first empirical effort to incorporate the effect of governmental safety and health regulation into the analysis of the workers' compensation at the micro level. The empirical findings generally support the theoretical prediction of a positive relation between workers' compensation and injury, especially for non-fatal injuries. Safety inspections and penalties are negatively related to workplace injuries for firms of contain characteristics and for certain types of injuries. In general, compensation benefits are more likely to be negatively related to the injury rates for larger firms and more severe injuries, while safety inspections are more likely to be negatively related to the injury rates for smaller firms and less severe injuries in the short term.