The Illusion of Efficiency in Workers' Compensation 'Reform' - Part Two

Abstract

From the late 1980s to 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, critical legal studies, law and economics, efficiency, occupational safety, occupational health, industrial accidents, no-fault compensation, social insurance, welfare policy, work disability, work accidents

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