Have Changing Liability Rules Compensated Workers Twice for Occupational Hazards? Earnings Premiums and Cancer Risks

Abstract

During the last couple of decades courts have intervened in employment relationships by allowing employees to circumvent the workers' compensation liability restrictions. Recent papers point to firms divesting themselves of operations whose employees handled dangerous substances as firms protecting themselves from these new liabilities. Supposedly, these actions prevent their workers from being justly compensated. We show that the central legal premise behind this argument is wrong. Firms cannot expose workers to hazards and then eliminate this liability by divesting or shutting down the hazardous operation. This paper also shows that workers were already being well compensated for carcinogenic exposures even before the courts started allowing workers to collect large damages for occupational illnesses. Instituting the new liability rules also coincided with a large drop in earnings premiums. The compensation for carcinogenic exposures implies values of life that are comparable to studies examining other occupational risks. Our best estimate is $6 million in 1984 dollars, with a range of 1.2 to $12 million. The large premiums imply that workers who were employed prior to the legal changes received court awards which essentially compensated them a second time for their misfortune.

JEL Classification: J28