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Commission on Health and Safety and Workers' Compensation (CHSWC)

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, California’s 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 state’s 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 California’s 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 nformation

Workers’ compensation and the California economy, April 2000