California's 2004 Workers' Compensation Reform: Costs, Claims, and Contingent Workers

43 Pages Posted: 8 Oct 2011 Last revised: 25 Apr 2014

See all articles by Benjamin Hansen

Benjamin Hansen

University of Oregon - Department of Economics; NBER; IZA

Date Written: April 22, 2014

Abstract

The large excess fraction of difficult-to-diagnose injuries on Monday was originally thought to reflect employees’ use of workers’ compensation to cover weekend injuries. However, there has been mixed evidence found supporting this notion. This paper takes advantage of substantial reforms in California which both made filing false claims more difficult and less attractive via reduced benefits. The effects of the reforms on the frequency of Monday claims and hard-to-diagnose injuries are empirically tested using 2002-2006 workers’ compensation claims from a large temporary employment agency, an industry with pronounced asymmetric information. In the post-reform period, the fraction of claims on Monday for difficult-to-diagnose injuries drops by 7 percentage points in California – with no change for branches in other states. The results are consistent with false claims explaining a part of the Monday effect, in industries with large asymmetric information. That said, when taking into account the effects of the reforms on claim costs and overall claim rates, the excess number of Monday claims make up less than 4 percent of the cost reductions brought on by the reforms.

Keywords: Workers’ Compensation, Moral Hazard, Monday Effect, Temporary Employment

JEL Classification: I18, J28, J53

Suggested Citation

Hansen, Benjamin, California's 2004 Workers' Compensation Reform: Costs, Claims, and Contingent Workers (April 22, 2014). Available at SSRN: https://ssrn.com/abstract=1940142 or http://dx.doi.org/10.2139/ssrn.1940142

Benjamin Hansen (Contact Author)

University of Oregon - Department of Economics ( email )

1285 University of ORegon
Eugene, OR 97403
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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