The Illusion of Efficiency in Workers' Compensation 'Reform' (Part One of Two Part Pdf File)

Rutgers Law Review, Vol. 50, No. 3, Spring 1998

144 Pages Posted: 8 Dec 1998 Last revised: 9 Jan 2011

Date Written: 1998


From the late 1980s through the 1990s, most states enacted major revisions to their workers' compensation systems. These law changes aim to restrict benefits for injured workers in response to perceptions that rising workers' compensation insurance costs had reached crisis levels by the late 1980s. This article analyzes the main features of these benefit reforms, and shows how these reforms reveal the problems of the predominant economic efficiency rationales underlying recent retrenchment of social welfare programs in general.

Using workers' compensation as an example, I argue that a premise central to much of contemporary law and policy - the distinction between economic efficiency and redistributive goals - is illusory. Although efficiency principles commonly have been used to explain recent benefit limitations as neutral economic measures aimed at maximizing overall resources, these principles inevitably incorporate value judgments about the proper distribution of resources. Rhetoric about restoring an "efficient" balance between workers and employers masks a redistribution of resources away from workers and toward employers and insurers. I show how concepts central to economic analysis of law, such as externalities, moral hazard, and transaction costs, disguise political power as economic fact.

I challenge the conventional wisdom that high workers' compensation costs are a problem of increased medical uncertainty resulting from expanded compensation of "subjective" injuries and illnesses, such as repetitive motion injuries or mental stress claims. By restricting access to benefits for these "subjective" injuries, recent reforms claim to reduce fraud, friction, and claims "external" to work. I argue instead that restrictions on such injuries will redistribute, not reduce, opportunities for fraud, friction, and externalization. I show how the costly uncertainty which plagues workers' compensation is not a problem of particular injuries or illnesses, but of the inherent subjectivity of the underlying ideal of the workers' compensation "bargain" between workers and employers which frames the debate. The predominant focus on restoring this supposedly efficient "bargain" obscures the value conflicts about the distribution of work accident costs which should be at the center of discussions of workers' compensation reform.

Keywords: workers compensation, tort law, no-fault, social insurance, work disability, work accidents, industrial accidents, occupational safety, occupational health, law and economics, critical legal studies, efficiency, welfare, legal theory, socioeconomics

JEL Classification: D60, D61, D62, D63, H21, H23, I30, I31, I38, J28, J30, J33, J38, K00, K13, K32

Suggested Citation

McCluskey, Martha T., The Illusion of Efficiency in Workers' Compensation 'Reform' (Part One of Two Part Pdf File) (1998). Rutgers Law Review, Vol. 50, No. 3, Spring 1998. Available at SSRN:

Martha T. McCluskey (Contact Author)

University at Buffalo Law School ( email )

O'Brian Hall
Buffalo, NY 14260-1100
United States
716-645-2326 (Phone)
716-645-2064 (Fax)

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