Study of workers' compensation and the California economy
Background
Various proposals to increase workers compensation benefits have been
submitted to the Legislature. Concerns have been expressed that increases in
benefits would have a negative impact on the California economy and on California
employers and employees. At its December 1999 meeting, the Commission voted to engage in a project to
analyze workers compensation benefit costs in relation to the larger California
economic picture. Description Workers compensation costs and benefits were analyzed in relation to
various economic indicators, such as total payroll, Californias Gross
State Product (GSP), and personal income. Information regarding workers
compensation cost as a percent of payroll by industry group was also included.
These analyses take into account the growth of costs that led Workers' Compensation
Insurance Rating Bureau (WCIRB) to recommend increases in the premium rate.
Findings California has the largest and most diverse economy in the nation. The California
economy is robust and is projected to continue to do very well. Economic growth
in California is expected to continue to exceed that of the nation as a whole,
reflecting faster population growth and the states favorable mix of high-tech
industries. The resources appear to be there to provide adequate compensation
to those workers who lose their ability to compete in the labor market. California's industrial injuries and illness rates have declined significantly
in all industries and sectors between 1988 and 1998 even though Californias
economy was growing. This improvement has been ascribed to a number of factors
including shifts in the workforce, greater emphasis on work-place safety, continued
efforts to combat workers compensation fraud, and changes in employer
reporting patterns. Workers compensation benefits have not kept up with inflation. For example,
the value of the permanent disability benefit after adjustment for inflation
has declined to about 80% of its value in 1984. Consideration should be given
to indexing benefits. Workers compensation costs decreased from 1992 through 1995 due in large
part to declining claim frequency and the elimination of the minimum rate law
governing workers compensation premiums. Increases in workers compensation costs from 1995 to 1998 are due in
part to the growth of the California workforce. Projected increases in cost
from 1999 to 2005 also take into account projected workforce growth. These estimates
reflect underlying cost increases calculated by the WCIRB that led WCIRB to
recommend increases in the premium rate. The ratio of workers compensation costs to total payroll (and to the
GSP and to Personal Income) has dropped significantly during the 1990s. Proposed
increases to benefits do not seem to significantly impact the ratio of benefits
to total payroll (and to GSP and PI), but such increases could affect certain
sectors more than they might others. Whenever a benefit increase goes into effect, the Commission on Health and
Safety and Workers Compensation (CHSWC) should study the impact of benefit
increase on wage loss of workers, time-out of work, the benefit adequacy and
equity, costs and utilization. This should include an ongoing evaluation of
the adequacy of workers compensation benefit levels and recommendations
for adjustments as needed. Further Information Workers
compensation and the California economy, April 2000